LogMeIn Inc (LOGM), Facebook Inc (FB): Friday’s Top Upgrades (and Downgrades)

Going against the grain of the multiple upgrades and price target hikes we saw yesterday, Argus is downgrading Facebook Inc (NASDAQ:FB) to “hold” today — and I have to say that I think Argus is calling this one right.

Once again, we’re faced with a stock whose P/E looks totally out of whack — this one being valued at some 150 times earnings, on 30% profits’ growth estimates. Once again, a deeper dive into the numbers reveals the stock to be not as overvalued as it looks, since free cash flow at Facebook Inc (NASDAQ:FB) ($2 billion), is about 3.6 times as strong as the company’s $557 million in reported profits might suggest. But once again, the price is just a bit too high.

Valuing the company on its real free cash flow as opposed to its accounting earnings gets us to about a 42-times multiple. But that’s still too much to pay for the 30% long-term growth that analysts predict for Facebook Inc (NASDAQ:FB). Even if the stock’s no longer as clearly overvalued as it was looking before Wednesday’s earnings beat, it’s still too expensive to buy.

…and tuning Dolby out
And finally, we come to Dolby Laboratories, Inc. (NYSE:DLB). Like the other techs, Dolby Laboratories, Inc. (NYSE:DLB) surprised a lot of analysts yesterday with fiscal Q3 earnings of $0.47 per share — more than half-again as good as the number Wall Street was expecting to see. Unfortunately, Dolby Laboratories, Inc. (NYSE:DLB) paired its “beat” with weaker-than-expected revenue, and a prediction that next quarter’s profits will come in between $0.30 and $0.36 — far short of the consensus number.

Analysts are reacting poorly to that prediction, with Dougherty & Co. downgrading to “neutral” this morning, and investors bidding Dolby down 3.5% in response. They’re right to do so.

Priced at 17 times trailing earnings, Dolby Laboratories, Inc. (NYSE:DLB) looks to be on-its-face overvalued based on 10% long-term growth expectations. What’s more, free cash flow at the firm is still lagging reported income badly, clocking in at less than $150 million, versus GAAP income of $195 million. That lifts the price-to-free cash flow ratio on this one north of 22 — far too much to pay for 10% growth, if that’s all Dolby Laboratories, Inc. (NYSE:DLB) will be able to produce.

As a former fan of the stock, and a former owner, I have to say… I’m glad I don’t own this one anymore — and I think that Dougherty is right to pull its buy rating as well.

Motley Fool contributor Rich Smith owns shares of LogMein and Dolby Laboratories (NYSE:DLB). The Motley Fool recommends Dolby Laboratories and Facebook. The Motley Fool owns shares of Facebook.

The article Friday’s Top Upgrades (and Downgrades) originally appeared on Fool.com is written by Rich Smith.

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