Is LinkedIn’s Stock a Buy Now?

With shares of LinkedIn Corporation (NYSE:LNKD) trading at around $119.02, 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

linkedinAnalysts are expecting FY2012 revenue of $940 million, which is a substantial increase over the $522.19 million generated for FY2011. Better yet, analysts are expected annual revenue growth of 36 percent over the next four years. This might all sound like great news, but there are high expectations. This is a company with a Trailing P/E of 767.87, and a Forward P/E of 92.26. Stocks with these kinds of multiplies will be the first to crater if the market falters. Another negative is insider selling over the past six months, which has now reached over 2 million shares. It’s not so bad that insiders have sold, but it is a bad sign that no insiders have jumped in and made a purchase. It’s evident that insiders lack conviction.

Some investors are concerned about competitors like Facebook (NASDAQ:FB) knocking LinkedIn out of the game. This is highly unlikely. LinkedIn has an enormous amount of data that potential employers are recruiters find valuable. LinkedIn is the ultimate business networking site, and that will not change at any point in the near future.

Let’s take a look at some important numbers for LinkedIn.

Start 2013 better than ever by saving time and making money with your Limited Time Offer for our highly-acclaimed Stock Picker Newsletter. Click here for our fresh Feature Stock Pick now!

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio and balance sheet for LinkedIn are excellent. In regards to Facebook and Monster Worldwide (NYSE:MWW), these are arguably the closest competitors as there are no direct competitors for LinkedIn.

Debt-To-Equity

Cash

Long-Term Debt

LNKD

0.00

$676.65 Million

$0

FB

0.04

$10.45 Billion

$530.00 Million

MWW

0.21

$175.10 Million

$195.94 Million

 

T = Technicals on the Stock Chart Are Strong

LinkedIn is up over 61 percent over the past year. There is a good chance the stock is way ahead of itself. LinkedIn would be hard-pressed to grow at a rate to justify current levels and beyond.

1 Month

Year-To-Date

1 Year

3 Year

LNKD

2.91%

3.66%

61.69%

N/A

FB

8.41%

11.42%

N/A

N/A

MWW

-0.68%

4.45%

-34.78%

-65.91%

 

At $119.02, LinkedIn is currently trading above all its averages.    

50-Day SMA

110.31

100-Day SMA

111.99

200-Day SMA

107.64

 

E = Earnings and Revenue Have Been Strong

Earnings have been growing since 2009. Revenue has been improving since 2007.

2007

2008

2009

2010

2011

Revenue ($)in millions

32.49

78.77

120.13

243.10

522.19

Diluted EPS ($)

0.00

-0.11

-0.10

0.07

0.11

 

When we look at the last quarter on a YoY basis, we see an increase in earnings and revenue.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

139.48

167.74

188.46

228.21

252.03

Diluted EPS ($)

-0.02

0.09

0.04

0.03

0.02

 

T = Trends Support the Industry

LinkedIn might be known as a networking site, but it’s really more of a data provider. Talent Solutions, an area where employers/recruiters pay for data on potential employees, generates 55 percent of LinkedIn’s revenue. This unique blend between a networking site and data provider make LinkedIn unique. Trends will often support a company with a unique niche. As far as social networking sites go, trends obviously support the industry – despite Facebook’s IPO mishap.

Conclusion

This story is easy to sum up. LinkedIn is a good company with a bright future, but when it comes to stock price, it looks significantly overvalued. LinkedIn is a STAY AWAY.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.