Facebook: Just the Facts

NEW YORK ( TheStreet) -- Everyone has an opinion on Facebook ( FB), and the major opinion is that one billion people just can't be wrong.

That being said, you need to evaluate where to put your hard-earned investment dollars using the best facts available, not the opinions of the one billion Facebook users, very few of them being owners of the stock.

Before we discuss FB and its initial public offering, just a little primer on IPOs in general.

If you have a privately held company that you want to take public your goal is to maximize the money you get for selling out your stock. You as an insider know the score and you look for an underwriting group that is going to get you whatever the market will bear.

Your underwriting costs are normally between 4% and 8% of the offering proceeds, so the day after the IPO the stock is technically worth 92 cents to 96 cents on the dollar. Most of the time the underwriting group agrees to support the price until the stocks price becomes stabilized but normally about 90 days.

This is done so most investors won't get burned and will take a chance on this unproven stock. If the price goes up it can be sold at a profit, but since there is price support there is little downside risk.

In the case of the Facebook IPO, in March it opened at $38, flew up to $45 immediately and once everyone tried to dump the stock for a quick profit they soon found out the underwriting group did not agree to price support. The stock tanked to a low of $17.55.

At the present time the stock seems to have stabilized in a narrow trading range, as you can see buy this 14-day turtle channel graph and 20- and 50-day moving averages provided by Barchart:

Now that the stock has apparently bottomed out, let's try to see where it might go from here:

Facebook operates as a social networking company worldwide. The company builds tools that enable users to connect, share, discover and communicate with each other; enables developers to build social applications on Facebook or to integrate their Web sites with Facebook; and offers products that enable advertisers and marketers to engage with its users. As of Feb. 2, 2012, it had 845 million monthly users and 443 million daily users. The company was founded in 2004 and is headquartered in Menlo Park, Calif. (Yahoo Finance profile)

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