Is Wall Street Hustling Facebook?

By John Carney, Senior Editor, CNBC.com

NEW YORK (CNBC) -- Let me propose something that not many people are saying Friday morning:

Facebook's initial public offering price may be too low. Mark Zuckerberg may have been hustled by Wall Street--like so many other tech company founders.

On May 3, Facebook said in a public filing that it would seek an initial price range for its shares between $28 and $35, which would value the social network at that range at between $77 billion and $96 billion. Since only a fraction of the company is being put up for auction, however, the company will only garner a maximum of $13.6 billion if the shares sell at that price range.

Skeptics are pointing out that in many respects a nearly $100 billion valuation is incredible.

Facebook received first-quarter revenues in 2012 of $1.058 billion, which means it is being valued at between 18.1 and 22.7 times annualized first quarter revenues. Facebook's first quarter profits were $205 million, which gives it a valuation of between 94 and 117 times annualized first quarter profits. If we used the full year's revenue for 2011 ($3 billion) and profits ($1 billion), we'd get a price of 25.7 to 32 times revenue and 77 to 96 times profits.

Those are eye-popping numbers. From now until the initial public offering, you can expect to read lots of bearish arguments against the price. Watch for the words "bubbly," "stratospheric," and "inflated."

You'll be warned to dodge the hype and avoid the IPO.

This is good advice. Facebook's IPO, like most IPOs, will be a highly speculative venture. This isn't appropriate for someone seeking long-term, stable growth to build a nest-egg for later in life.

So how can I wonder if Facebook's IPO price might be too low? Well, in the first place, the P/E ratio isn't quite as unbelievable as it may seem. Google was valued at $24.6 billion in its IPO, at a time when its revenues were $1.47 billion and its profits were $106 million.

That tells us that Google was priced at 16.3 times revenue and a truly astounding 232 times profits.