NEW YORK (CNNMoney) -- Facebook's IPO is causing a frenzy among investors eager to get a piece of the social networking website.
Whether it's a good idea to jump in when FB debuts Friday on the Nasdaq is another story.
"Investors shouldn't invest in any one stock unless they can afford to lose it all," said Jay Ritter, professor of finance at the University of Florida. "With a growth company like Facebook, there is a lot of upside potential, but there is also substantial downside risk if the company fails to meet expectations."
Buying shares during the initial public offering process is particularly challenging for small investors. Shares of an IPO are primarily distributed to the institutional investors, mutual funds and hedge funds which are the biggest clients of the major Wall Street banks that are underwriting the offering.
While Facebook is making an effort to make some of its hotly sought after shares accessible to all, they'll still be hard to come by.
The demand is so strong that Facebook raised the target price range for its stock to between $34 and $38 per share, from the $28 to $35 range it set earlier this month. And early Wednesday, Facebook said it will sell 25% more of its shares.
Sterne Agee analyst Arvind Bhatia says there's a buying opportunity for investors if they're able to snag Facebook shares within the IPO offering range. But to those who have to wait until Facebook shares begin trading on the open market on Friday, Bhatia urges caution.
Given all the hype, experts anticipate that the company will have a strong debut.
For example, when Groupon (stock opened at $28, 40% above its IPO price, and surged as much as 56% on its first day of trading when it hit an all-time high of $31.14.) went public last November, the
If investors had purchased shares of Groupon during their first day of trading, they've likely had a tough time booking decent returns. The stock has been trading below its IPO price for months, and is currently 40% below its IPO price.
Similarly, Zynga () shares surged as much as 15% during their market debut in December, but ended up closing that day 5% below the IPO price. Shares are now trading more than 14% below the IPO price.
"I would say it's better for individual investors to generally avoid playing the IPO game until a few quarters after the company goes public so that its stock is a bit more established," said Bhatia. "Or they need to be able to stomach a lot of volatility."
If you're daring enough to try buying Facebook shares on opening day, there are a few ways to protect yourself.
For example, by using a so-called limit order, you can set a ceiling for the purchase price that you'll be comfortable paying, said Tom Schrader, managing director at Stifel Nicolaus.
If the stock stays above your limit, or if other limit orders snatch up all the shares available at the limit price, the trade won't be executed. You can also specify whether you want to consider buying the stock with the limit order just at the open or throughout the trading day.
On the flip side, if you nab some shares and want to sell them at a certain price, you can use a limit order that sets a floor on the sales price that you're willing to accept, helping you prevent selling your shares for less than you want.
The hard part is determining what's a fair price for a share of Facebook. Morningstar's analyst Rick Summer pegs fair value for the stock at $32.
"The enthusiasm for Facebook is not misplaced, but the market may be underestimating near-term challenges for the company," he said.
In particular, Summer noted that while Facebook will be able to translate its immense user base - over 900 million a month -- into massive growth over the long run, "the ability to further monetize current users represents a significant hurdle which must be overcome."
Concerns are particularly high about the company's ability to monetize the growing number of users that are accessing Facebook on mobile devices.
"We see mobile monetization as a significant long-term growth opportunity for Facebook, but with some initial challenges," said Sterne Agee's Bhatia, whose price target for Facebook's stock over the next 12 months is $45. "For example, it is not yet clear if most of the mobile advertising growth will be incremental or will cannibalize online advertising."
Advertising accounted for 85% of Facebook's total 2011 revenue, but to-date, most of Facebook's ads have been display ads: banners, images and other graphics, ignoring mobile devices.
Another worry among analysts is Facebook CEO Mark Zuckerberg's tight grip on the company. After the IPO, the young billionaire will control about 57% of the voting power.
Morningstar's Summer notes that Facebook's recent purchase of Instagram for $1 billion reportedly happened with little involvement from the company's board of directors.
"If Mr. Zuckerberg loses discipline in allocating the company's capital, there can be no guarantee that any such mechanism would prevent the company from destroying shareholder value," he said.
Following an IPO-induced pop, Summer said the focus on these looming challenges may lead to stock price declines and "ultimately create a very interesting buying opportunity for the shares at a later date."
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