LinkedIn (LNKD) reports earnings tonight, and I feel the stock will pop after it reports. The reason? LNKD upped earnings estimates by a wide margin the last time it reported. After the dust settled, 2014 EPS est jumped from $1.65 to $1.87, and 2015’s from $2.50 to $2.75.
If I’m guessing right, 2015’s estimates might get pushed to the $3 range. Right now the stock is at $197. That would mean a P/E of 66 x 2015 estimates. That’s expensive, but in line with what LNKD usually trades at around its lows.
The risk is this earnings season high P/E stocks have been getting slammed after they have reported. Twitter (TWTR) dropped from $49 to $44 after it reported and Yelp (YELP) fell from $70 to $57. Both of these were one day moves.
I like LinkedIn, but I passed on it years ago when it broke out at $90 and haven’t gotten the nerve to get in since. Much of it is because of the always-too-high P/E multiple, which I think is unsustainable in the long-run.
One Year Chart
Here’s LNKD as of 2014 Q3. The stock got a huge boost after it beat the street and upped estimates last quarter. But the stock has also had its troubles as well. 3QtrsAgo the company slashed profit estimates for 2014 & 2015. That’s why you see the stock falling down a hill during the Spring of 2014. At its lows of $136 the stock sold for 86x earnings. Still too high, no?
This chart shows a P/E of 121, but that’s on 2014 earnings estimates of $1.87. After LNKD reports I will use 2015 estimates to calculate a P/E.
Fair Value
I’m guessing LNKD is worth 60 times earnings. With 2015’s profits estimated to come in at $2.74, that gives the stock a 2014 Fair Value of $164. LNKD is $197 now.
Sharek’s Take
LinkedIn could come out with a solid report tonight and sent the stock flying higher. On the other hand it might get cut if investors aren’t impressed with what LNKD provides. I’m going to hold off on buying. This company has been able to grow revenue at 50% a year for many years, and I assume that will slow at some point. When that does the ultra-high P/E could deflate. I just don’t feel we are getting value buying this stock at such a high valuation.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
