Ask Matt: Is Facebook overvalued at $38?

Ask Matt: Is Facebook overvalued at $38?

Shares of Facebook rallied more than 30% on the release of the news. The stock has finally busted above its $38 a share initial public offering price of more than a year ago.

Are shares overpriced at $38 a share? To find out, investors can examine the company's PEG ratio. The PEG ratio compares a company's P-E ratio to its expected growth rate. A PEG over one indicates the stock isn't exactly a bargain.

Facebook is expected to earn an adjusted profit of 71 cents a year in 2013 and post an average annual revenue growth rate of roughly 23% over the next five years. That gives Facebook a PEG ratio of 2.3, well above what makes a reasonably priced stock. That might be why even the average Wall Street analyst is calling a price target on Facebook at $37 a share.