What To Hold: Facebook Inc's Hold Recommendation Reiterated

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Facebook (Nasdaq: FB) has been reiterated by TheStreet Ratings as a hold with a ratings score of C. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Highlights from the ratings report include:
  • FB's very impressive revenue growth greatly exceeded the industry average of 16.5%. Since the same quarter one year prior, revenues leaped by 63.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although FB's debt-to-equity ratio of 0.03 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 11.46, which clearly demonstrates the ability to cover short-term cash needs.
  • Powered by its strong earnings growth of 566.66% and other important driving factors, this stock has surged by 156.56% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Internet Software & Services industry and the overall market, FACEBOOK INC's return on equity is below that of both the industry average and the S&P 500.

Facebook, Inc. operates as a social networking company worldwide. It provides a set of development tools and application programming interfaces that enable developers to integrate with Facebook to create mobile and Web applications. Facebook has a market cap of $135.3 billion and is part of the technology sector and internet industry. Shares are up 25.3% year to date as of the close of trading on Monday.

You can view the full Facebook Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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