Facebook (NASDAQ:FB), More Than Just Earnings

Earnings are coming for Facebook, and investors are sure to be very interested as always, but there is something in addition to earnings that investors need to consider.  The net real stimulus in the United States Economy officially dried up in April, and the combined efforts of the UST and FOMC are now at breakeven domestically.  This impacts liquidity and excess liquidity is the main driving force behind high Beta names like Facebook.

Facebook (NASDAQ:FB) is scheduled to report earnings on Wednesday, and the company is trading with a multiple that makes some investors think of the Doc com era, but the company is actually making money, and growing EPS handsomely.  In fact, earnings growth vs. the same quarter last year is expected to double, which makes that price earnings multiple far less daunting.

Without argument, Facebook is richly valued, and if the company hiccups at all multiple contractions can come, but Facebook has beaten estimates three quarters in a row, EPS growth has been solid, and the company is looking for new ways of increasing revenues and enhancing shareholder value.

Reaching a mobile audience is a must, and if Facebook is able to serve mobile advertising without disrupting the user experience it will probably turn out to be a landslide victory and shun the naysayers in this stock.  Those who love Facebook are looking forward to that day.

Unfortunately, even though the recent results have been positive and the prospects are bright, one thing matters more than anything else when it comes to investing in stocks like this, and that's liquidity.  In order for highflying stocks like Facebook to continue to attract money, liquidity in the stock market must be free flowing enough so that aggressive dollars are willing to come to the table.

Recently, when Facebook and the other highfliers fell aggressively it was due almost solely to a collapse in the liquidity earmarked for aggressive investments by institutional investors.  Those investors were making a clear transition to more conservative stocks like those in the Dow Jones industrial average, and out of shares of the higher beta stocks like Facebook.

However, in doing so, Facebook also fell from resistance all the way down to support as that is defined in our real time trading report for Facebook, and after testing support Facebook has already begun to increase again.  If longer term support remains intact, our combined analysis for Facebook tells us to expect the stock to increase back to its longer term resistance level again.  That makes Facebook interesting, even in light of the liquidity concerns.