GO
Loading...

This is the price at which Twitter is too high, Cramer says

With investors all abuzz about Twitter's upcoming initial public offering, Jim Cramer said Tuesday he is "deathly afraid of another Facebook deal happening here."

Facebook raised its price range, as well as the total number of shares, in its IPO just before it debuted in May 2012. The move maximized the amount that backers raised but contributed to declines in the stock in the early days of trade.

(Read more: As Twitter IPO prices, poll says it's not worth hype)

Adam Jeffery | CNBC

Twitter raised its share price range to $23 to $25 Monday but kept its offering size at 70 million shares. But Cramer is worried that institutional investors will pressure their brokers into buying as many Twitter shares as possible, only to turn around and sell them at a much higher price to retail investors.

"The big boys are betting that other, less informed investors—people who use Twitter and love it, people who don't know how to value the stock but just figure how can you go wrong—are going to come in and buy the stock from the professionals at much higher prices than they could hope to get on a pure valuation basis," Cramer said. "What I worry about are the people who think there's no price that's not worth paying for Twitter."

(Read more: Twitter 101: Mobile tips for the power user)

But Cramer told his "Mad Money" viewers that there is in fact a price at which Twitter is not worth owning: a valuation of $20 billion and no more. He arrived at that by taking into account what other companies would be willing to pay for Twitter, coupled with an effective discount to Facebook in terms of size and profitability.

Cramer blessed buying Twitter at no more than $28 a share but reminded investors not to buy the stock in the after-market, because that's almost always a losing trade.

—Reuters contributed to this report

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

Symbol
Price
 
Change
%Change
TWTR
---
FB
---

Featured

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.