Will LinkedIn Surge Higher After Recent News?

With shares of LinkedIn (NASDAQ:LNKD) trading around $209, 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 an online professional network 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 introducing a Chinese-language website that will restrict some content to adhere to state censorship rules, expanding in a country where U.S. technology companies have clashed with the government. The Mountain View, California-based professional social-networking company is offering a new version to provide a more localized service after more than a decade of having an English-language site there, Derek Shen, LinkedIn’s China president, said in a blog post yesterday. LinkedIn is also creating a joint venture with Sequoia China and China Broadband Capital to connect more than 140 million Chinese professionals, he wrote. LinkedIn said it has more than four million members in China, which is one of the company’s fastest-growing user bases. The new website puts LinkedIn deeper into a country where social-media peers such as Twitter Inc. (NYSE:TWTR) and Facebook Inc. (NASDAQ:FB) are blocked after they balked at government censorship rules. Facebook hasn’t built up operations in China beyond hiring contractors to help advertisers reach people outside of the country, spokesperson Debbie Frost has said. Google (NASDAQ:GOOG) ran afoul of Chinese authorities in 2010 for refusing to abide by local censorship requirements, leading to the company shutting its unfiltered search tools there and redirecting users to pages in Hong Kong.

T = Technicals on the Stock Chart Are Mixed

LinkedIn stock has been pulling back over the last couple of quarters. However, the stock is currently surging higher and looks poised to continue. 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 below its rising key averages which signal neutral to bearish 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

42.22%

20%

18%

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

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-70.24%

50%

137.5%

400%

Revenue Growth (Y-O-Y)

47.3%

55.92%

59.37%

72.29%

Earnings Reaction

-6.2%

-9.31%

10.6%

-12.93%

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

P = Weak 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

-3.22%

28.33%

8.76%

11.78%

6.77%

LinkedIn has been a poor relative performer, year-to-date.

Conclusion

LinkedIn allows consumers, companies, and groups to network worldwide from the comfort of their computers. The company is introducing a Chinese-language website that will restrict some content to adhere to state censorship rules. The stock has been pulling back over the last couple of quarters, but is currently surging higher. Over the last four quarters, earnings and revenues have been rising, which has left investors in the company pleased. Relative to its peers and sector, LinkedIn has been a poor year-to-date performer. WAIT AND SEE what LinkedIn does this coming quarter.

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