Social Media Can Be Antisocial Toward Investors

CHARLOTTE, N.C. ( TheStreet) -- Lately investors in the social media sector probably have felt as though the the stocks have been very antisocial toward them.

Obviously, social media Web sites have great public appeal. But just because you can get people to sign up for your Web site doesn't mean you can monetize that interest and make a profit.

Two social media stocks that have captured the public's interest have also taken some abuse.

The problematic Facebook ( FB) IPO is still getting media coverage every day, and as you can see from the hourly trading chart below provided by Barchart.com, the stock has taken a beating.

The underwriters supported the stock on only the first day till they could get the stock out of their inventories and into the public's hands, and then they laughed all the way to the bank. Down and down it goes and where it stops nobody knows.

Some investors were lucky enough to get in on the LinkedIn ( LNKD) IPO and made some nice gains, but later investors have had mixed results as the stock is still trying to find its legs. Since the IPO, weekly prices have been all over the place, as the following chart from Barcharts.com shows:

So how do we make money in this sector? Again I go back to my four criteria:
  • Projected growth in revenue
  • Projected growth in earnings
  • Recent price momentum
  • Solid balance sheet

One stock I found was LivePerson ( LPSN), although it's not really a social media stock in the same way that Facebook is. Over the past year, the chart shows steady price appreciation:

source: Barcharts.com

This stock has outperformed the market impressively. The chart below shows that LivePerson is up 64% over the past year, while the market, represented by the Value Line Index, is down 3%.

source: Barcharts.com

Although LivePerson is not a Web site where people meet and communicate, it does facilitate customer interaction on business Web sites, and it does provide social media services and advice, so in that sense it's "social."

The company helps businesses interact with their customers in real time with chats, voice/click-to-call, emails and more.

Factors to consider:

Barchart.com technical indicators:
  • 100% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20-, 50- and 100-day moving averages
  • 11 new highs and up 22.57% in the last 20 trading sessions
  • Relative Strength Index 68.77%
  • Barchart.com computes a technical support level at $17.45
  • Recently traded at $18.25 with a 50-day moving average of $16.36

Fundamental factors:
  • Although 10 Wall Street firms have assigned analysts to the stock, only nine have a current recommendation.
  • Analysts project revenue will be up 21.50% this year and another 21.30% next year.
  • Earnings are estimated to increase by 13.90% this year, an additional 19.50% next year and continue to increase annually by 23.13% over the next five years.
  • There are three strong buys, five buys, one hold and no underperform or sell recommendations to clients.
  • The P/E ratio of 15.66 is very close to the market P/E of 14.40 -- not much of a premium for a growth stock.
  • The stock pays no dividend at this time.
  • The Financial Strength rating is B+ with no long-term debt or pension liabilities on the balance sheet.

Investor interest:
  • Readers of TheStreet give the stock a B+ sentiment rating
  • Oppenheimer just instituted an outperform recommendation on the stock.
  • Other positive reports were released by Wunderlich, Landenburg and Northland Securities.

I like to compare a stock's performance to other stocks. We already discussed FaceBook and LinkedIn above. Many of the social media sites are buried in much larger companies such as Google ( GOOG), AOL ( AOL) and Microsoft ( MSFT).

Some other sites are still in the private hands of founders or venture capitalists, so comparisons are hard to come by.

The three others that have enough trading volume to warrant attention are Ancestry.com ( ACOM), up 15% in the past year; MeetMe Inc. ( MEET), down 5% in the past year; and SalesForce.com ( CRM), which is up 35% but still is no match for the 46% price increase of LPSN.

(SalesForce.com is not really a social media Web site in the strict sense, but its customer-relationship-management offerings assist other companies in communicating with their customers.)

source: Barcharts.com

Ancestry.com
  • C TheStreet reader rating.
  • Revenue projected to be up 16.60% this year and 12.90% next year.
  • Earnings estimated to be up 22.50% this year and 20.90% next year.

MeetMe Inc.
  • Not rated by TheStreet readers
  • Revenue projection up 334.60% this year and 47.00% next year
  • Earnings to be up 102.00% this year and 4,200.00% next year

SalesForce.com
  • Rated C by TheStreet readers
  • Revenue projected to be up 33.40% this year and 25.70% next year
  • Earnings to be up 9.60% this year and 32.90% next year

Summary: In the social media sector stock prices and projections of revenue and earnings are all over the place and hard to forecast.

While you wait for Facebook to bottom out and look for Linkedin to have some price stabilization, I suggest you consider LivePerson.

The company has a solid business plan and balance sheet. What's more, analysts are projecting double-digit increases in revenue and earnings.

The investing public has taken notice, and the stock's price is very much in line with the market P/E, so it has room to grow as the increased earnings materialize.

As always, I suggest you closely monitor the moving averages and 14-day turtle channels for exit points:

source: Barcharts.com

Disclosure: At the time of publication Jim Van Meerten does not own shares of LivePerson, but it is on his short list, and he may use it to replace a current holding.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.