This 260% Gainer Could Deliver Double-Digit Profits by Summer

This week, social media giant Facebook (NASDAQ: FB) had an important birthday. The company turned 10.

But it's traders who are celebrating. After an extremely disappointing post-IPO performance, the shares are now on a tear. From its September 2012 post-IPO low of $17.55, shares are up more than 260%. On Friday, they broke to an all-time high near $64.50.

Currently sitting above an accelerated uptrend, and with no resistance in sight, FB could move much higher.

Driving growth is its impressive ability to generate advertising revenue. In the fourth quarter of 2013, the company brought in $2.3 billion from advertising, a 77% increase from the year-ago quarter.

Worldwide, each user contributed an average of $2.14 to Facebook's Q4 revenue. And with its user base still growing, it appears the company has found a path to financial success. In the fourth quarter, 757 million people used Facebook each day, up 4% from 728 million in the third quarter and 22.5% from 618 million in the comparable year-ago period.

While user growth in North America and Europe has slowed, people in Asia and the rest of the world are still joining Facebook in large numbers. In Q4, there were over 200 million daily Facebook users in Asia, compared with 153 million in the year-ago quarter. In the rest of the world (excluding North America and Europe) daily users increased 34% from 161 million in the fourth quarter of 2012 to 216 million in the most recently reported fourth quarter.

Massive future growth potential exists. Right now, only one-third of the world is connected to the Internet. Over the coming years, Facebook plans to help connect the other two-thirds of the population in an initiative it calls

The social media giant is also attempting to attract and retain users through a personalized news feed. The company recently launched a new app called Paper designed to tie in news feeds with personalized updates.

Due to growing ad revenue and an increasing user base, Facebook's fourth-quarter and full-year 2013 results were very strong. Revenue for the fourth quarter increased 63% from the year-earlier period to $2.6 billion. Full-year revenue grew 55% year-over-year to $7.9 billion.

These robust growth figures have helped shares surge.

FB Stock Chart

The technical picture presents a significant about-face. Not so long ago, the company was considered a poster child for an unsuccessful IPO.

After debuting in May 2012 in the high $30s and immediately running up to $45, FB plummeted. Roughly five months after the IPO, the share price had been cut in half.

From there, the stock began to recover, reaching a peak just above $32 at the beginning of 2013, before backing off to $22.67 in June of that year. 

After moving sideways for a few weeks, in July, the stock jumped nearly $10 in one trading week, rallying on solid second-quarter results and forming an accelerated uptrend line. FB is currently trading well above this accelerated uptrend line, which also offers important support near $54.

Below that, there should be rock-solid support around $45 -- the stock's IPO peak and a consolidation level through the fall of 2013.

The day after the company posted fourth-quarter and full-year 2013 results, shares rallied 14% and have not looked back. With no overhead resistance in sight, the stock appears poised to move much higher. The mean target of the more than 40 analysts following the company is just over $70, and the high target is $82.

The bullish technical outlook is supported by strong fundamentals.

For the upcoming first quarter, analysts project sales will surge 58.5% from the year-earlier quarter to $2.3 billion. For the full 2014 year, analysts expect revenue will increase 43% year over year to $11.2 billion.

The earnings outlook is similarly positive. First-quarter earnings are estimated to rise 92% to $0.23 per share from the comparable year-earlier period. Full-year earnings are estimated to be $1.25 per share, up 42% from 2012.

Risks to consider: Facebook's current success is based on its steadily growing user base and increasing ad sales. As long as people continue using the site, advertisers will pay to attract targeted audiences. While it's possible another networking platform could eventually replace Facebook, for now, the social media site is in a strong position.

Recommended Trade Setup:

-- Buy FB at the market price
-- Set stop-loss at $53.89, just below support marked by the intersection of the accelerated uptrend line
-- Set initial price target at $72.95 for a potential 14% gain by early summer 2014

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