BOSTON (MarketWatch) — Average investors pick stocks based on gut feelings, news and emotions. They live by one of the mantras of investment legend Peter Lynch, who espoused a know-what-you-own philosophy that amounted to this: “Like the company and you’ll like the stock.”

Well, you might like Facebook, but go past the surface level and dig into the registration paperwork for the company’s massive initial public offering and the social-networking firm gets a big thumbs-down.

In fact, it’s the Stupid Investment of the Week.

Stupid Investment of the Week showcases the conditions and characteristics that make a security less than ideal for average investors, in the hope that highlighting danger in one case makes it easier to avoid trouble elsewhere.

Poke and a pop

The buying case for Facebook Inc. FB, +1.93% goes beyond the IPO’s looming as the biggest deal since Google’s GOOG, +0.32% in 2004. There are some 800 million Facebook users, and even a novice investor can appreciate the revenue potential from a big audience that’s getting bigger every day.

The case against Facebook is in the other numbers — the valuation and the paperwork. Yes, there will be a pop from the IPO; one of Wall Street’s dirty little secrets is that most big IPOs are set up for a surefire hot start, so the stock looks good right out of the box, but the average investor typically can’t capture that fast money.

What really matters is what happens after the big debut.

Facebook IPO raises many questions

If — like most average investors — you don’t want to read the paperwork and delve into the company’s registration statement, you could simply watch the movie “The Social Network,” about the founding of Facebook.

Even if you acknowledge how the account was fictionalized and the story made certain characters look good or bad, answer a simple question when the film is done: “Would I want to be Facebook founder Mark Zuckerberg’s next business partner?”

Most people would answer “no.”

Read the registration papers, and you’ll see why your gut tells you to stay away.

In fact, if you showed the filing’s 22 pages of “risk factors” — more than in most bad variable annuity contracts — to average investors without ever disclosing which company the filing was for, there’s little doubt the investors would run the other way.

Key among those considerations:

Facebook is a “controlled company,” which means the board of directors does not have to be independent, nor does it even have to have an independent, nominations process or compensation committee. (And it won’t.)

The public is buying Class A shares, where each share carries a single vote; the insiders have Class B shares, which carry 10 votes each. Zuckerberg controls the majority of the voting power, including final say over who gets elected to the board, and the structure will stay that way well into the future, no matter how many other shares are issued and released to the public.

That’s important, because Facebook “anticipates that a substantial number of shares could be sold up to two years following the completion of its initial public offering.”

It’s also worth noting that Zuckerberg is not the most experienced corporate executive, and he’s never really had to worry about making numbers that please shareholders and potential investors.

In the registration statement, Zuckerberg included a letter saying that he has “always cared primarily about [the company’s] social mission,” sharing right off the bat that Facebook was “not originally created to be a company,” but “was built to accomplish [that] social mission.”

Whatever kind of public-company executive Zuckerberg proves to be, investors will be stuck with him.

Like my bubble status

Then there’s the valuation, where Facebook is pricey by any standard. See Mark Hulbert’s take on Facebook’s valuation..

If Facebook launches at $90 billion, it will command almost half of the market capitalization of Google, but with just one-tenth of the projected income.

“If media estimates are right and the company is valued between $75 and $100 billion, Facebook would be among the 70 largest publicly traded companies,” said Charles Rotblut, editor of the AAII Journal.

Rotblut estimated the company’s net income to stand at $668 million — based on a calculation of Class A and B shareholders rather than the firm’s baseline net income figure of $1 billion — “Facebook will be offered at a price/earnings multiple of 150, a sky-high valuation is for a company whose CEO has limited managerial experience.”

Facebook also has to contend with the headwinds that have hit social-media IPOs. Companies such as LinkedIn Corp. LNKD, Groupon Inc. GRPN, -9.42% , Pandora PNDZF, -0.82% and Zynga Inc. ZNGA, +0.55% have looked good on paper, but have struggled since opening day.

Facebook believers are hoping the stock’s performance is more akin to Google, up big on its first day and, after a brief respite, up 500% since. Chances are Facebook will wind up somewhere in the middle, not as bad as the recent IPOs but not a clear-cut winner for a while.

There also are serious concerns about Facebook’s business model. Facebook makes its money on advertising, but I know my own children have migrated to using the service on their mobile devices, and Facebook’s filing made it clear the company does not bring down meaningful revenues on that platform.

And while Facebook’s growth has been impressive, it has to slow simply because so many people already use the service. Moreover, Facebook’s ongoing popularity is not guaranteed: AOL and Yahoo, for example, have shown that even the top names in an emerging niche — the entrenched franchises in a hot business — can be displaced by something newer and better. See Dave Callaway’s take on why Facebook users won’t be Facebook investors.

“There’s some lasting power to Facebook, but this valuation just seems crazy to me. It just whiffs of the old techno bubble,” said James Lenz, associate director of the El Paso Corp. Finance Center at Rice University’s Jones Graduate School of Business.

“If you really believe in Facebook for the long haul,” he added, “wait for the IPO period to end and the initial euphoria to pass, wait to see the price get better and take your chance then. If you jump in right at the beginning, when it’s going crazy, you’re banking on Greater Fool Theory, just hoping there is someone who is even more excited than you are to keep the price going up.”

Added Karl Mills, president of Jurika, Mills & Keifer, a San Francisco investment advisory firm: “Facebook is a great company, but even great companies are only worth so much, and the surest way to lose money is to overpay to own something.”