Risky Business: LinkedIn Stock Soars and Plummets Largely on Speculation

Amid speculation that tech stocks are severely overpriced, analysts are still putting their stamp of approval on many Internet companies. CNN Money cites LinkedIn (NYSE:LNKD) as one such stock whose price has been on a roller coaster ride since its May IPO, yet advisors are still rating the company as a “buy.”

At the stock’s debut, LinkedIn (NYSE:LNKD) traded at $128, but quickly sank back to $60 a share just a month later. Analysts began raving about the company and the stock bounced back to $102. And then, you guessed it, the price drooped again settling around $56 in late November. Now the analysts have the company’s back yet again and are recommending that investors snap up the stock and are predicting the stock will soon be trading anywhere from $84 to $100. The stock price is now on the rise again.

While CNN Money’s Kevin Kelleher will agree that LinkedIn is a solid business, he still believes investing in the company is a big risk. Kelleher wrote, “But the risk for investors buying LinkedIn at $70 today isn’t that the company is hurting, it’s that there is no rational explanation — beyond pure speculation — why the stock is so expensive. LinkedIn may in fact rise above $84 soon, but it’s a roll of the dice. It depends on further speculation and sheer volatility (exacerbated by the growing short interest on the stock). “

Kelleher also predicts a large sell off as LinkedIn’s (NYSE:LNKD) stock price reaches $100 because of the large quantity of shares that have recently been released or will be released in the near future. LinkedIn released 10 million shares in mid-November, followed just two days later by the end of a locked-up period for another 24 million shares and in February an additional 55 million shares will be unlocked. Kelleher predicts that this large influx of available shares could certainly take its toll on the stock and is not shy in disagreeing with analysts’ endorsement of the stock.  “Whatever the motivations for the bullish views on LinkedIn at its current price, there is something reckless about recommending a stock fueled largely by speculation, while downplaying the risks.”