Can LinkedIn Continue to Move Higher After Its Offering?

With shares of LinkedIn (NASDAQ:LNKD) trading around $240, 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 as well as build and engage with their professional network, access shared knowledge and insights, and find business opportunities. Its platform also provides members with applications and tools to search, connect and communicate with business contacts, learn about career opportunities, join industry groups, research organizations, and share information. Networking and social contact is rising in importance for consumers and companies all around the world.

LinkedIn is planning to offer $1 billion worth of its stock — which has been trading near all-time highs and gained 110 percent in the past year — in a move to strengthen its balance sheet. Some have speculated that the business social networking site could be planning a big acquisition. Co-founder and Chairman Reed Hoffman will still retain the majority of control of the company, Forbes reports.

Also, LinkedIn shares have been on the rise after the company reported second quarter earnings that topped expectations. The professional networking service’s earnings came in above the company’s own typically conservative forecasts. There are now a total of 238 million members on the site with 20 million being added in the second quarter, a 36 percent increase in membership versus a year ago.

T = Technicals on the Stock Chart Are Strong

LinkedIn stock has been surging higher over the last several years. The stock is now consolidating slightly below all-time high price so it may need a bit of time before its next move. 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

(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

37.29%

60%

57%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

137.50%

400.00%

604.00%

-50.00%

Revenue Growth (Y-O-Y)

59.37%

72.29%

117.68%

108.22%

Earnings Reaction

10.60%

-12.93%

21.26%

-0.06%

LinkedIn has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been happy with 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), Google (NASDAQ:GOOG), Monster Worldwide (NYSE:MWW), and sector?

LinkedIn

Facebook

Google

Monster Worldwide

Sector

Year-to-Date Return

109.80%

56.65%

22.28%

-21.00%

27.84%

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

Conclusion

LinkedIn allows consumers, companies, and groups to network worldwide from the comfort of their computers. The company is set to offer more stock in order to clean up its balance sheet. The stock has been surging higher over the last few years and is now trading near highs for the year. Over the last four quarters, earnings and revenues have been rising, which has kept investors in the company pleased. Relative to its peers and sector, LinkedIn has been a year-to-date performance leader. Look for LinkedIn to continue to OUTPERFORM.

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