Time to 'Friend' Facebook

NEW YORK (TheStreet) -- Now that Facebook (FB) has been trading and reporting revenue and earnings for at least six months, it's time to put it on your watchlist.

Look but don't dive right in without looking at the numbers and comparable opportunities.

During the last six months, although the over all market as measured by the Value Line Index has been flat, Facebook seems to have finally found its support level and is past its IPO jitters.

Look at Facebook compared to the Value Line Index in this graph provided by Barchart and you can see that FB is trying to catch back up to the market:

Technical factors to consider: Barchart gives the stock both an 80% Barchart technical buy signal and a Trend Spotter buy signal based on price momentum and technical analysis. The stock is finally trading above its 20-, 50- and 100-day moving averages with a Relative Strength Index of 70.39%.

During the last month the price had 12 advances for 30.26% and during the last quarter advanced 17 times for a 55.61% gain. The stock is still off its past high by 27.83%. Barchart computes a technical support level at 25.73 and it recently traded at 27.55 which is above its 50-day moving average of 21.90.

Fundamental factors to consider: Wall Street is closely following this stock and 26 firms have assigned 36 analysts to project numbers on this one. They have consensus projections of revenue increases of 35% for this year and another 28.90% next year.

Earning estimates look good with a consensus increase of 20.90% this year, 25.03% next year and an annual increase of 26.95% for the next five years. If we use the annual earnings per share estimate of 42 cents, that gives us a present price/earnings ratio of 66.

There is still a lot of cash left over from the IPO and it will be needed to keep the site up to date and ahead of the competitions developments. The company has a B+ financial strength rating. The stock is still not rated by TheStreet.

Investor interest: Wall Street is pushing the stock at this level and presently brokerage firms have issued 11 strong buy, 14 buy, 10 hold and only a single sell recommendation to their clients. Wall Street looks for investors at this level to gain a 20% annual total return over the next five years.

The individual investor got burned badly on the IPO and over on Motley Fool 1,509 individual investors that have this stock on their watchlists only give it a 52% vote of confidence to beat the market in the coming year.

Other opportunities: I like to compare a featured stock to other stocks in the same sector, which is the Computer Programming and Data Processing Services sector.

During the past six months while Facebook has gained 11.80%, other stocks that did well were Solera ( SLH), up 22%, United Online ( UNTD), up 32%, and Rackspace Hosting ( RAX), up 48%.

Solera has a financial strength of B and is rated B by TheStreet. At a P/E ratio of 23.42, analysts project a revenue increase of 5.60% this year and annual earnings increases of 13.23% over the next five years.

United Online has a financial strength of B and is rated C by TheStreet. The P/E ratio is 9.08 and analysts think the revenue will be down 0.10% next year but earnings are expected it increase annually at the rate of 15% for at least five years.

Rackspace Hosting has a financial strength of B++ and is rated B by TheStreet. The high P/E ratio of 96 is paired with revenue predicted to increase by 26.30% next year and earnings to increase annually by 29.13% for five years.

Conclusion: Facebook is the market leader in innovation and attracting viewers. Over a billion people agree and have signed up. The revenue model is still to be proven and cost containment is essential.

From this point on Facebook is playing with other peoples' money and stockholders will expect expenditures to have a cost benefit relationship. I'm not sure how high the price will go but I think if you look at this chart and compare the moving averages and turtle channels you will conclude the bottom now has support.

From here on out it will be revenue and earnings that will drive the price and not hype. This is still a speculative issue and you should watch the support levels if you buy:

At the time of publication the author had no position in any of the stocks mentioned.

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

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