However, that IPO has left the company slightly overvalued. At current levels LinkedIn has a market cap of almost $10 billion and is trading at more than 30-times 2010 sales. And while the company has guided third-quarter and full-year revenue higher, it also has warned that it won't be profitable in 2011.
That's not to say LinkedIn doesn't have some real advantages - it does. The company has performed very well in some areas and operates in an attractive niche. But it's also facing some serious headwinds that include market saturation, pressure from short-sellers, and low revenue expectations.
For those reasons, LinkedIn is a "Hold" - at least until its share price more closely aligns with its fundamentals.
A Closer Look at LinkedInLet's look at the positives first.
These results are no fluke. As a social network focused on professionals, LinkedIn is a valuable resource for unemployed workers - and there are a lot of people looking for jobs right now.
LinkedIn now has about 120 million members. That's good, but it also means that the company has basically penetrated its targeted audience in the United States and must grow its international exposure. It also needs to monetize its network of unemployed members.
LinkedIn plans to reinvest its profits, giving the company little-to-no expectations of real net earnings in 2011. Typically, companies that have a market cap of $10 billion have already gotten their growing pains out of the way. But that's not the case here, which testifies to the fact the stock is overvalued.
LinkedIn shares closed Friday down 4.36% at $91.36. At current levels, the company has a Price/ Earnings (P/E) ratio of nearly 2,300, which makes the stock extremely rich, from the point of view of a value investor. This is about buying future undefined growth.
In a market that is extremely volatile, LinkedIn is a "Hold." The stock already has gained about 100% from its IPO.
While LinkedIn is growing its fundamental numbers, and its second-quarter results released showed real growth, the market value of the company is still way ahead of itself.
(**) Special Note of Disclosure: Jack Barnes has no interest in LinkedIn Corp.
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays.
LinkedIn Follws up IPO with Strong 2011 outlook
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
Confessions of a Macro Contrarian.
Hot Stocks: Why LinkedIn Is More than Just a "Bubble"
Are We in the Middle of a New Tech Bubble?
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