In the last couple of years, except Apple shares, Facebook and Twitter shares have also become interesting to small investors.
Facebook shares have been indeed growing much more then the average, but in comparison to Apple shares, the price share growth isn’t based on income and profit made in the present, but on the expected results in the future.
The huge expectation of shares from Facebook and Twitter can be seen in the following table:
|Share growth per year:||37,20%||29,96%||-14,07%||-5,59%||-3,72%|
|Share growth / income:||15,73||79,87||53,52||21,57||25,41|
Even though the relation of share price and income per share isn’t the only indicator that needs to be taken into consideration when purchasing shares, it is one of the most important. At the companies portrayed at the table, considering their current income, Facebook and Twitter shares are multiple times more expensive then shares of Apple, McDonalds, and Coca-Cola.
Current high price of shares is based on the expected high income of the companies in the future, which may or may not be realized. Facebook and Twitter are doing business in extremely dynamic industry in which each moment a new competitor can rise, so trends could be changed overnight, like the case when internet started to be used via smartphones.
On the other hand, companies such as McDonalds and Coca-Cola are getting their income in the present, so the shareholders are receiving payments regularly which leads to stable share growth. Beside this, these companies are doing business in much more stable environment where it takes decades to change buyers ahabits.
Analysts think that it is still possible that Facebook and Twitter shares will grow above average, but considering the risk that comes with investment in these types of shares, one shouldn’t invest all their fund in these shares, but a smaller part. The rest of the fund should be evenly distributed into 10 or more stable companies in many different industries. With this type of diversification the risk is being reduced significantly.