LinkedIn (LNKD) keeps on rising. The stock’s gone from $174 last quarter to $242 this quarter (+39%). Since last quarter LNKD’s P/E has risen from 120 to 156. The positives are the company had 59% revenue and 138% profit growth last quarter.
Any negatives? Well, LNKD beat the 30 cent estimate by 15 cents two quarters ago, but only beat the 30 cent estimate by 8 cents last quarter. Also, after LNKD reported two quarterts ago, it had 2013 estimates upped by 11%. This time estimates increased by only 7%.
In my opinion, LNKD has surged higher because things are clicking within the company, and the Bull Market in stocks is helping the top growth stocks the best. It’s tough to find a company growing 100%, and LNKD is one of the few companies doing so. Institutions have made bets on LNKD — and won.
But now the market’s showing signs of fatigue, and LNKD might not have enough juice to keep going. A pullback in LNKD would be great, it would give us a chance to get in. Let’s look at what our target price to buy in at would be.
One Year Chart
Looking at the one-year chart, it looks like LinkedIn is extended, I wouldn’t buy it now. To me, looking at the technicals, $185 or so is a good price to get in. But the only way I see that happening is if the stock market goes into a big correction.
Another problem I see ahead is comparisons will be a bit tougher, so triple-digit growth might go away for good. LNKD made $0.45 vs $0.15 = 200% 2QrtrsAgo and $0.38 vs $0.16 = 138% LastQtr. Next quarter’s estimate is $0.32 vs $0.22 = 45%. LNKD needs to beat by at least 10 cents to continue triple-digit growth. If it just beats by 8 cents, growth would be 82%. Still great, but slowing.
Things get even harder two quarters from now, as the current expectation is $0.40 vs $0.35 = 14%. Can you make 70 cents by then LinkedIn? You made $0.35, $0.45 and $0.38 the past three quarters. What concerns me most is the $0.38 it just made was not a record quarter.
Fair Value
What is this stock worth? Tough question. We need to look a year or two out to get an answer. Let’s say it makes $3.00 in 2014 (current estimate is $2.19). A 50 P/E on 2014’s number gets a $150 stock. LNKD is $242 now.
When I almost purchased LNKD in the $90s last fall, the stock had a 74 P/E. I think that’s a good time to buy if the stock gets down that low. Using the current 2014 estimate that’s a target price of $162.
Sharek’s Take
Whaterer way you look at is, LinkedIn is overvalued. I love the stock, and want to get in, but all these hypotheticals I just ran tell me we need to hold off and wait for a major correction before getting in. The numbers I just threw out are $185, $150 and $162.
LinkedIn has been one of the biggest benefactors of the strong move of the stock market this year. Strong bull markets take the best stocks up the most, and LNKD investors have profited handsomely. But now with stocks fully valued, the going should be tougher going forward.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
