Today's Momo Momentum Stock Is Facebook (FB)

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.

Trade-Ideas LLC identified Facebook ( FB) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Facebook as such a stock due to the following factors:

  • FB has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $1.5 billion.
  • FB has a PE ratio of 77.
  • FB is currently in the upper 30% of its 1-year range.
  • FB is in the upper 25% of its 20-day range.
  • FB is in the upper 35% of its 5-day range.
  • FB is currently trading above yesterday's high.
  • FB has experienced a gap between today's open and yesterday's close of 0.8%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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More details on FB:

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. FB has a PE ratio of 77. Currently there are 25 analysts that rate Facebook a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Facebook has been 23.2 million shares per day over the past 30 days. Facebook has a market cap of $181.5 billion and is part of the technology sector and internet industry. The stock has a beta of 0.77 and a short float of 1.1% with 1.26 days to cover. Shares are up 3.5% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Facebook as a buy. 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, expanding profit margins, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 5.8%. Since the same quarter one year prior, revenues rose by 41.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • FB's debt-to-equity ratio is very low at 0.01 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 7.97, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for FACEBOOK INC is currently very high, coming in at 94.44%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 14.45% trails the industry average.
  • Net operating cash flow has increased to $1,700.00 million or 32.29% when compared to the same quarter last year. Despite an increase in cash flow, FACEBOOK INC's average is still marginally south of the industry average growth rate of 41.44%.
  • FACEBOOK INC's earnings per share declined by 28.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, FACEBOOK INC increased its bottom line by earning $1.10 versus $0.59 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $1.10).

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