Does LinkedIn Support All-Time Highs?

With shares of LinkedIn (NYSE:LNKD) trading around $191, is LNKD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

LinkedIn is a professional network on the Internet with more than 90 million members in over 200 countries and territories. Through the Company’s platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. Its platform provides members with solutions, including applications and tools, to search, connect and communicate with business contacts, learn about career opportunities, join industry groups, research organizations and share information. Its members create profiles that serve as their professional profiles and are accessible by any other member, as well as anyone with an Internet connection. The networking services offered with LinkedIn make it a viable tool to the growing business community.

T = Technicals on the Stock Chart are Strong

LinkedIn stock has seen a significant surge since its initial public offering in 2011. The stock is now trading at all-time highs and sees no signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, LinkedIn is trading above its rising key averages which signal neutral to bullish price action in the near-term.

LNKD

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of LinkedIn options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

LinkedIn Options

57%

96%

91%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on LinkedIn’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for LinkedIn look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

191.67%

120%

300%

650%

Revenue Growth (Y-O-Y)

117.68%

108.22%

142.96%

130.42%

Earnings Reaction

21.26%

-0.06%

16.04%

7.21%

LinkedIn has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been very excited about LinkedIn’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has LinkedIn stock done relative to its peers, Facebook (NASDAQ:FB), Monster Worldwide (NYSE:MWW), Dice (NYSE:DHX), and sector?

LinkedIn

Facebook

Monster Worldwide

Dice

Sector

Year-to-Date Return

66.32%

-1.20%

-22.06%

-5.77%

9.84%

LinkedIn has been a relative performance leader, year-to-date.

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Conclusion

LinkedIn provides networking, contact, and business opportunities to a wide range of businesses and its participants around the world. The stock has been on an amazing run since going public 2011. In fact, it is now trading at all-time high prices. Earnings and revenue figures have maintained investors excited. Relative to its peers and sector, LinkedIn has outperformed, year-to-date, by a significantly wide margin. Look for LinkedIn to continue to OUTPERFORM.

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