We have identified five red-hot technology stocks that investors seem to love lately. We look at the reasons we feel they are overvalued.
LinkedIn Corporation (NYSE:LNKD) – This Mountain View, CA-based operator of the online social and professional network shows a price to earnings ratio of 470.61. Its competitor Monster Worldwide, Inc. (NYSE:MWW), which provides online employment services, has a price to earnings ratio of 166.73. The industry average is 13.63. LNKD’s price to earnings ratio is exorbitant in light of its earnings per share of $0.18. In fact, at the close of business on Wednesday, its $85.47 share price was 474 times is earnings per share. Its gross profit is not available, but its trailing 12-month profit margin is 4.43 percent. LNKD does show quarterly revenue growth of 120.5 percent. MWW reports earnings per share of only $0.05, profit margin of 0.57 percent, and quarterly revenue growth of 25.5 percent.
While shorting the stock has grown less attractive, now may be the time to lock in gains by selling positions purchased previously at lower prices. LNKD’s 52-week prices range from $60.14 to $122.70. It was trading up by about 8 percent Wednesday afternoon.
Salesforce.com (NYSE:CRM) CRM’s price to earnings ratio of 611.76 compares to its peers Oracle Corp.’s (NASDAQ:ORCL) 16.49 and SAP AG’s (NYSE:SAP) 23.26. CRM shows earnings per share of $0.21, whereas ORCL shows $1.67, and SAP reports $2.27. CRM’s gross margin of 79.42 percent is strong and beats ORCL’s 76.43 percent and SAP’s 70.24 percent. CRM’s 52-week trading range is $97.92 to $160.12. It closed Wednesday at $125.46, which is 597 times its earnings per share. Shares seem a bit overvalued right now and at least one insider seems to agree. A CRM insider sold 500 shares for over $64,000 last week. CRM is on this Seeking Alpha writer’s list of “7 Pumped Up Stocks Being Stalked by Short Sellers” because of its excessive valuation. We agree. We feel CRM, like LNKD, is grossly overvalued.
Netflix Inc. (NASDAQ:NFLX) Unlike the stocks mentioned above, NFLX’s price to earnings ratio, at 54.83, is below the 100 mark. Its earnings per share is $3.94. Wednesday it closed at $216, which is 55 times its earnings per share. Other key statistics include quarterly revenue growth of 51.7 percent, return on equity of 83.62 percent, a debt to equity ratio of 70.41. Its competitor Amazon.com Inc. (NASDAQ:AMZN) shows a higher price to earnings ratio of 97, lower earnings per share of $2.27, quarterly revenue growth of 51 percent, and return on equity of 15.24 percent. The main focus on the shortcase for NFLX is the dead deal with Starz (LSTZA) Entertainment cable network. Without content, NFLX is nothing. As production houses and film studios recognize the value of their movie and TV show libraries in the new age of the internet, companies like Netflix are held hostage. Netflix has had a good run, but we foresee a downward spiral from here. NFLX shows a 52-week price range of $137.60 to $304.79.
Baidu, Inc. (NASDAQ:BIDU) Based in Beijing, this company is a Chinese and Japanese language search engine. Its price to earnings ratio is 66.39. BIDU was trading Wednesday afternoon around $146.05, which is 66 times it earnings per share of $2.20. This compares to Sohu.com Inc.’s (NASDAQ:SOHU) price to earnings ratio of 18.85 and earnings per share of $4.19. BIDU’s share price has ranged from $82.89 to $165.96 over the past 52 weeks. Other metrics look good for BIDU. It is profitable with a gross margin of 80.51 percent. This compares to SOHU’s 73.59 percent. Its return on equity is 56.76 percent, and its debt to equity ratio is only 2.41. Even though BIDU operates essentially as a monopoly in China, we still feel it is overvalued on a price to earnings basis.
Renren Inc. (NYSE:RENN) - This company operates an Internet social networking platform in China. It has received a lot of headlines lately and heavy volume. One thing to point out about RENN is that the stock is trading far below its IPO price. That point withstanding, I believe competitor Sina Corporation (NASDAQ:SINA) and RENN are overbought considering their poor earnings power. RENN reported a loss per share of $0.85. It closed Wednesday at $6.98, near the bottom of its 52-week range of $6.13 to $24. It shows a net loss of $65.36 million. Its competitor Sina Corp. (SINA) shows a loss per share of $0.70. It closed Wednesday at $109.2. Its 52-week trading prices ranged from $42.88 to $147.12.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.