4 Recent IPO Stocks To Sell Or Sell Short

Includes: DNKN, LNKD, P, Z
by: Hedgephone

Wall Street was busy this spring launching privately held businesses into the public markets via high profile IPOs such as the LinkedIn (NYSE:LNKD) IPO and more recently, the IPO of Dunkin' Brands (NASDAQ:DNKN). Dunkin' Donuts is an iconic American business, but the stock was recently downgraded by one of the banks that took the company to market, Goldman Sachs (NYSE:GS). While this is unusual, I believe the trend was started with LinkedIn's downgrade a few weeks back. Here are 4 Recent IPOS that we view as a sell.

Dunkin' Brands (DNKN) -- Dunkin' Brands was initiated a Sell by Goldman Sachs this week, and I concur with this view of the name at this valuation. While I like Dunkin quite a bit, I don't think the business can grow at a 20% clip, let alone the 30% plus clip the company's current valuation suggests. While we really like this company, the valuation has gotten ahead of itself.

Pandora (NYSE:P) -- Pandora is trading at a healthy 18.7X Book Value with a price to sales of 9.5X and a market cap of close to 2 billion. Personally, I think the name has a lot of downside risk given the current market and the web 2.0 bubble, which is bound to eventually burst and boom once again, albeit from prices 50% lower than they are today in many cases.

LinkedIn (LNKD) -- Now that LinkedIn has become a $7 Billion Dollar company, down from a $9.5 Billion Dollar company, I am less interested in shorting the stock. However, I do think investors on the long side who still have a profit should look to lock in gains, as the name is still empirically pricey relative to earnings and cash flows. Like the other names on this list, just because you invest in an awesome company does not make that investment a good deal if the valuation is too rich for the long term holder of the stock.

Zillow (NASDAQ:Z) -- Zillow.com is a great company with a great product. That said, the company's website which provides "Zestimates" on home prices is a lot of fun and in some cases pretty accurate, but the tool by itself is not worth 100X or even 50X earnings in my view. I don't see how Zillow can grow at a 50% clip in a market like residential real estate which is shrinking.

Disclosure: I am short LNKD.

Additional disclosure: short lnkd call options