With shares of LinkedIn (NASDAQ:LNKD) trading around $235, 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 MovementLinkedIn is a professional network on the Internet 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. It's 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.
Analysts from BMO Capital have upgraded LinkedIn from Market Perform to Outperform and raised their price target on the company's shares from $235 to $270, as the firm believes a formal launch of LinkedIn in China is on the horizon. "We believe there are several new stories emerging that will raise long-term growth expectations; in particular, we believe LinkedIn is preparing to formally launch in China. Management has discussed this idea previously, and we learned from a separate NDR with MDC Partners that one of their agencies has been hired to begin a public relations outreach for LinkedIn in China," BMO analyst Daniel Salmon said in a note seen by Street Insider. "We assume a formal launch in 2014, with monetization beginning to ramp in 2015."
T = Technicals on the Stock Chart Are StrongLinkedIn stock has been trading sideways in the last couple of months. The stock is currently trading near all time highs and looks set 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 above its rising key averages, which signal neutral to bullish price action in the near-term.
(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 | 38.10% | 26% | 24% |
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 | |
| December Options | Flat | Average |
| January Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish 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-QuarterRising 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 Q3 | 2013 Q2 | 2013 Q1 | 2012 Q4 | |
| Earnings Growth (Y-O-Y) | 50.00% | 137.50% | 400.00% | 604.00% |
| Revenue Growth (Y-O-Y) | 55.92% | 59.37% | 72.29% | 117.68% |
| Earnings Reaction | -9.31% | 10.60% | -12.93% | 21.26% |
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 = Excellent Relative Performance Versus Peers and SectorHow 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 | 103.60% | 81.26% | 52.48% | -1.78% | 59.89% |
LinkedIn has been a relative performance leader, year-to-date.
ConclusionLinkedIn allows consumers, companies, and groups to network worldwide from the comfort of their computers. Analysts from BMO Capital have upgraded LinkedIn from Market Perform to Outperform and raised their price target on the company's shares from $235 to $270. The stock has been trading sideways over the last couple of months, but is currently trading near all time high prices. Over the last four quarters, earnings and revenues have been rising, which has kept investors in the company pleased. Relative to its peers and sector, LinkedIn has been a year-to-date performance leader. Look for LinkedIn to continue to OUTPERFORM.
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