With shares of LinkedIn (NASDAQ:LNKD) trading around $195, 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.
Professional networking site LinkedIn has opened up a new publishing platform for all its members globally. A move that will help the networking site achieve the goal of becoming a definitive publishing platform for professionals, helping members become better at their jobs by giving them a single destination to consume, create, and share relevant professional content. The move, experts feel, is to generate interest among the members and take on other social networking sites such as Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR).
LinkedIn has disclosed that page views have slipped for the second consecutive quarter this year. The company is now shifting its positioning as just a plaftform for headhunters and job-seekers to a social site with several new features such as news, links, and status updates from members. In addition to that, it has added a new crop of influencers in India, including Pepsico (NYSE:PEP) CEO Indira Nooyi and Swati Piramal of Piramal Enterprises to the already existing ones including Infosys (NYSE:INFY) executive vice chair Kris Gopalakrishnan, HCL CEO Anant Gupta, Biocon founder Kiran Mazumdar Shaw, and Nandan Nilekani amongst others.
T = Technicals on the Stock Chart Are Weak
LinkedIn stock has been pulling back in the last couple of quarters. The stock is currently trading sideways and may need time to consolidate. 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.
Image may be NSFW.
Clik here to view.
(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 |
40.77% |
0% |
0% |
What does this mean? This means that investors or traders are buying a very small 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 very small 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 optimistic about 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?
|
|
|
|
Monster Worldwide |
Sector |
|
| Year-to-Date Return |
-9.35% |
21.54% |
7.22% |
6.45% |
2.08% |
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 has opened up a new publishing platform for all its members globally. The stock has been pulling back over the last couple of quarters and may need time to consolidate. Over the last four quarters, earnings and revenues have been rising, which has left investors in the company optimistic. Relative to its peers and sector, LinkedIn has been a poor year-to-date performer. WAIT AND SEE what LinkedIn does this coming quarter.
Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.
More From Wall St. Cheat Sheet:
- LinkedIn Earnings Are Strong, But Weak Guidance Sinks the Stock
- LinkedIn’s New Google-Inspired Tool
- 3 Buzzing Social Media Stocks: Twitter Starts at Sell, Facebook’s Faltering Popularity, LinkedIn’s Fresh Pulse