Skip to main content
You have permission to edit this article.
Edit
How to Buy Facebook for the Price of a Penny Stock
AP

How to Buy Facebook for the Price of a Penny Stock

  • 0
{{featured_button_text}}
How to Buy Facebook for the Price of a Penny Stock

Shares of Facebook (NASDAQ: FB) soared last week after a killer earnings report. Analysts were expecting year-over-year revenue growth of 33.5%. Instead, the social media giant blew past their expectations, reporting 48% revenue growth.

Facebook shares were up about 8% at the end of trading on Friday compared to one week earlier. Buying a single share of Facebook would now cost you around $325.

If that sounds out of your budget, do not fret. There's a way to buy Facebook shares for penny stock prices.

Image source: Getty Images.

Facebook fractional shares vs. penny stocks

In the past couple of years, fractional shares have become popular among investors who want to invest in pricey stocks without spending tons of money. The concept is pretty simple: Decide how much you want to invest, and you'll get a corresponding fraction of a share. For example, if you opted to invest $100 in Facebook stock, you'd get slightly less than one-third of a share.

You may be thinking: Why settle for one-third of a Facebook share when that same $100 could easily buy 50 or 100 shares of penny stocks?

It's understandable why you'd want to buy penny stocks in hopes of finding the next Facebook while it's ultracheap. But the crucial thing you need to know is that most successful companies were never in penny stock territory. When Facebook went public back in 2012, its shares traded at around $38. By comparison, penny stocks trade for $5 or less. Even when Facebook shares tanked by more than 50% later in 2012, they never reached anywhere close to penny stock prices.

Penny stocks are cheap for a number of reasons. Maybe their business model is unproven, or they have everything riding on a single product that has yet to get approval. Or they were once successful but are now on the brink of financial collapse. Scams are also extremely common in the world of penny stocks. You're far more likely to lose everything than you are to multiply your money.

Instead of putting your cash into something that's unknown at best, why not invest in a company that has a strong track record of making money? A good way to find strong investments is to think about companies in terms of their economic moat, which is a way famed investor Warren Buffett thinks about competitive advantages.

Facebook has a huge economic moat. Consider all the businesses that depend on Facebook to reach customers and all the people you know who use Facebook to stay connected and also have a decade's worth of pictures stored there. If you're not a Facebook fan, you can use fractional shares to invest in another company with a huge economic moat, like Amazon (NASDAQ: AMZN) or Apple (NASDAQ: AAPL).

How to buy fractional shares

An investment isn't necessarily a value, even when it's cheap. Before you invest in anything, whether it's fractional or full shares, learn the basics of how to value a stock.

If you want to buy fractional shares, make sure your brokerage allows it. Though fractional shares are becoming more popular, some brokerages still don't offer the option. Also, while it's pretty easy to transfer full shares from one brokerage to another, that's often not the case for fractional shares. If you switch brokerages, you may need to sell your fractional shares and then repurchase them through your new account, which could have tax consequences.

10 stocks we like better than Facebook

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Facebook wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of February 24, 2021

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Robin Hartill, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, and Facebook. The Motley Fool recommends the following options: long January 2022 $1920.0 calls on Amazon, long March 2023 $120.0 calls on Apple, short January 2022 $1940.0 calls on Amazon, and short March 2023 $130.0 calls on Apple. The Motley Fool has a disclosure policy.

0
0
0
0
0

The business news you need

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

As if there isn’t already enough analysis paralysis around choosing an ultra-premium card, American Express blurs the line even further. The Platinum card you thought you were familiar with actually comes in four different versions: The Platinum Card® from American Express American Express Platinum Card for Schwab The Platinum Card from American Express Exclusively for […]

Get up-to-the-minute news sent straight to your device.

Topics

News Alert

Breaking News