Is LinkedIn Too Expensive?

With shares of LinkedIn Corporation (NYSE:LNKD) trading at around $172.73, 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:

C = Catalyst for the Stock’s Movement

LinkedIn will be the clear leader in professional networking for many years to come. LinkedIn currently has over 200 million members, and it already operates in more than 200 countries. There is also a lot more room for growth. Job seekers are becoming more aware that employers use LinkedIn more than any other service when looking for potential job candidates. LinkedIn is also at the expert level when it comes to monetization.

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Here are just a few other positives for LinkedIn:

  • Q4 revenue increase of 81 percent year-over-year
  • Marketing Solutions up 27 percent year-over-year
  • Premium Subscriptions up 79 percent year-over-year
  • Talent Solutions up 90 percent year-over-year
  • FY2013 revenue expectation between $1.41 billion and $1.44 billion
  • Continuous international growth
  • Effective cost-control measures

There is only one major negative with this story, but we’ll get to that later. For now, let’s take a look at the site’s performance over the past three months. In regards to traffic rank, LinkedIn.com is ranked #13 in the world and #11 in the United States. More than 1.5 million sites link in to LinkedIn. Over the past three months, pageviews have increased 5.92 percent, pageviews-per-user have decreased 1.15 percent, bounce rate has increased 2 percent, and time-on-site has remained even. These aren’t spectacular numbers, but they’re not cause for concern, either. As long as the traffic rank remains high, everything else will take care of itself. It should also be noted that the average time-on-site over the past three months is 7 minutes and 27 seconds, which is very high.

The chart below compares fundamentals for LinkedIn, Facebook (NASDAQ:FB), and Monster Worldwide (NYSE:MWW). These three companies differ in size. LinkedIn has a market cap of $18.46 billion, Facebook has a market cap of $63.27 billion, and Monster Worldwide has a market cap of $503.41 million.

LNKD

FB

MWW

Trailing   P/E

881.46

1770.67

N/A

Forward   P/E

81.37

34.05

10.79

Profit   Margin

2.22%

1.04%

-29.06%

ROE

2.82%

0.64%

5.69%

Operating   Cash Flow

$267.07 Million

$1.61 Billion

 $53.33 Million

Dividend   Yield

N/A

N/A

N/A

Short   Position

6.60%

6.80%

22.00%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for LinkedIn is stronger than the industry average of 0.10. It’s also stronger than the debt-to-equity ratios for Facebook and Monster Worldwide.

Debt-To-Equity

Cash

Long-Term Debt

LNKD

0.00

$749.55 Million

$0

FB

0.20

$9.63 Billion

$2.36 Billion

MWW

0.19

$148.18 Million

$164.24 Million

 

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T = Technicals Are Strong

LinkedIn has performed extremely well over the past year. It has also easily outperformed Facebook and Monster Worldwide year-to-date.

1 Month

Year-To-Date

1 Year

3 Year

LNKD

-2.92%

50.42%

73.79%

N/A

FB

-2.31%

1.73%

N/A

N/A

MWW

-8.82%

-19.04%

-51.06%

-73.08%

 

At $172.73, LinkedIn is trading above all its averages.

50-Day   SMA

157.45

100-Day   SMA

133.88

200-Day   SMA

121.39

 

E = Earnings Have Been Steady           

Revenue growth has been spectacular on an annual basis. Earnings have moved at a much slower pace, but at least they have been heading in the right direction.

2008

2009

2010

2011

2012

Revenue   ($)in   millions

78.77

120.13

243.10

522.19

972.31

Diluted   EPS ($)

-0.11

-0.10

0.07

0.11

0.19

 

When we look at the last quarter on a year-over-year basis, we see a significant increase in revenue and a slight increase in earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

167.74

188.46

228.21

252.03

303.62

Diluted   EPS ($)

0.09

0.04

0.03

0.02

0.10

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

LinkedIn has created its own industry, which is very impressive. In regards to Internet information providers, the industry is highly susceptible to market corrections.

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Conclusion

LinkedIn is an extremely well-run operation, and the future looks bright. However, there is one big concern, which is valuation. Though the future is bright, investor optimism seems to have gone too far too fast. If optimism fades and the stock comes back down to realistic levels, then it’s worth serious consideration. For now, LinkedIn is a WAIT AND SEE.

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