At this point, you've gotten quite an earful about Facebook (Nasdaq: FB). But whether you're hopping mad or shaking your head at the apparent foolishness, a bull or a bear, a Mark Zuckerberg fanboy or a hater, you have to admit this: For all of its size and influence, as an investment Facebook has some serious fleas.
So if you're reading about Facebook but hoping to invest in something better, here are five companies that excel where Facebook falls short.
1. Facebook has an unproven business model
Because Facebook is online and most of its revenue comes from advertising, it's tempting to think of the business model as very similar to that of Google. However, the search-centric model of Google is different from Facebook's social-networking platform, so it'd be a mistake to automatically assume that Facebook's advertising business will be as successful as Google's. Maybe more worrisome, as technology continues to shift Facebook users to mobile devices, the company will have to grapple with a platform that hasn't been particularly lucrative for it thus far.
On the polar opposite end of the spectrum, Procter & Gamble (NYSE: PG) has a very well proven business model — it develops and sells products and brands that consumers are willing to buy over and over again. Not only is that business model time tested, but so is P&G's incarnation of that business — the company is 175 years old and owns blockbuster brands such as Gillette, Tide, and Crest.
2. Facebook's stock appears vastly overvalued
On the basis of Facebook's forward earnings — that is, what Wall Street expects the company to earn over the next year — the company's price-to-earnings ratio is 52. In simple terms, that means — growth aside — that if investors were given every cent of Facebook's profit, it would take 52 years for them to be paid back for their investment. Only after that would they be making a profit.
Just staying within the world of tech, there are plenty of investment options with lower valuations. Google's forward P/E ratio is 13, Apple's (Nasdaq: AAPL) is 11.8, Cisco is at 8.8, and Oracle trades at 10.2 times its expected earnings.
One of my favorites, though, is Intel (Nasdaq: INTC). Its forward P/E is less than 10, and it's a business that's proved itself very successful over decades of slinging industry-leading chips.
3. Facebook doesn't pay a dividend
A stock doesn't have to pay a dividend to be worth buying, but in recent years many investors have recognised the value that comes from a quarterly cash profit payout. Since Facebook is still in high-growth mode, it's smart for it to hold onto its cash. But that's not the case for many companies — even in the historically dividend-unfriendly tech sector.
For investors who want a company that pays them back, the mighty Apple is one place they can look. The company had been reluctant to start distributing its massive cash hoard to investors, but it finally cracked earlier this year and announced that it will start paying its shareholders. It won't be a huge dividend — yields from companies the likes of Intel and Microsoft are higher — but Apple should have a lot of room to grow that payout in the future.
4. Facebook is overhyped
The time to buy a stock is either when everyone is (mistakenly) pessimistic about the company or they're just plain ignoring it. The worst time to buy? When everyone is hyped up about the stock and can't stop talking about it. Even though Facebook's stock has fallen precipitously since the IPO, it still falls in the latter category.
Table Facebook, at least for now, and check out some ignored or beaten-down stocks. One such idea is Advance Auto Parts, the US$5 billion auto-parts retailer. The company has a great track record, but the stock got pummeled recently because of a lacklustre forecast for this year.
5. Facebook's top brass is questionable
I applaud Zuckerberg — he's done an outstanding job creating a huge business and making himself insanely wealthy. But do I want to invest in a company run by a 28-year-old who was reluctant to show up for the meetings for the company's IPO? I'm not so sure. Worse, do I want to own a company that thinks it's OK to endow insiders with special voting rights? Umm …
Ditch Facebook and opt for Berkshire Hathaway (NYSE: BRK-B). Despite being one of the most famous investors on the planet, Warren Buffett has no problem spending a lot of time chatting with his shareholders at the company's annual meeting. And while Berkshire does have a dual-class share structure, neither of the share classes are unavailable to outside investors — you just need deep pockets to snag those $119,845 "A" shares.
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A version of this article, written by Matt Koppenheffer, originally appeared on fool.com