This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

It's Time to 'Unfriend' Facebook From Your Portfolio

>>5 Favorite Stocks From the Pros

And while I'd argue that LinkedIn is overpriced in its own right, at least the model is there -- and so is the earnings growth.

Another issue comes in the performance metrics used by advertisers. While Google's software allows for some very precise cost/benefit tracking when using its AdWords pay per click service, many of Facebook's benefits are a little less tangible. How much is a "like" worth, for instance?

Until companies are better able to quantify the return on investment on their Facebook spending, the social network is going to be the first cost that gets cut when the economy hits a hiccup. We've already seen that last year in incremental declines in advertising spending on the site.

It's Expensive

I said that Facebook was expensive, and it is. At nearly $28 right now, the firm has a market capitalization of $66 billion, and a price-to-earnings ratio that's off the charts. Even if we throw out the most recent year's barely-there profit of 1 cent per share and use FB's best year of profits in 2011 to calculate its earnings multiple, the firm still trades for around 100 times earnings.

For comparison's sake, Google traded with a P/E of 77 back in late 2004, just a few months after its IPO. That means that shares of Facebook cost about 30% more than Google did when it was at the same stage post-IPO, when we've already established that Facebook should be trading for a discounted multiple compared to cash cow Google.

>>5 Rocket Stocks Getting Ready for Blastoff

Other valuation metrics spit out similar results. This stock isn't a bargain after falling 30% from its post-offering highs. Instead, it's still quite expensive.

Technical Factors Don't Look Promising

From a technical standpoint, Facebook looks "toppy" right now.

While shares have been rebounding well from a deeply oversold condition back in the Fall, they're losing a lot of their luster now. So even ignoring the fundamental flaws in this stock, traders should be thinking about an exit strategy for Facebook in March.

Facebook is in the early stages of forming a head and shoulders top, a price pattern that's formed by two swing highs separated by a bigger high. The head and shoulders indicates exhaustion among buyers, and after the run that Facebook has had in the last few months, those buyers have good reason to be worn out. From a sentiment standpoint, I doubt that many of them are high conviction buyers to begin with.

2 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,754.61 -125.75 -0.74%
S&P 500 1,953.05 -17.02 -0.86%
NASDAQ 4,415.0270 -47.8750 -1.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs