LinkedIn: Back To $90 And Primed To Short

Oct.14.11 | About: LinkedIn (LNKD)

The market looks poised to wrap up its best three-week stretch since July 2009. As we get nearer to the top end of a trading range that has been in place for months, it is prudent to look for short positions to balance out your portfolio and take advantage of an inevitable pullback when the next piece of bad news leaks out of Europe. One stock that has had a nice run up in the last few weeks and stretch from any sort of valuation perspective is LinkedIn (NYSE:LNKD).

“LinkedIn Corporation operates an online professional network. The company, through its proprietary platform, allows members to create, manage, and share their professional identity online, 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.” (Business Description from Yahoo Finance.)

Seven reasons LNKD is overvalued at $90 a share:
  1. It has tried and failed at the $87.50 to $90 price level over the last two months (see chart):Click to enlarge
  2. It is projected to make less than 10 cents in earnings in 2011 (No, that is not a misprint)
  3. The median EPS estimate for 2012 is 32 cents. This puts a forward P/E of over 280 on LNKD.
  4. If you prefer operating cash flow as your metric, LinkedIn is selling at almost 100 times operating cash flow.
  5. The median analyst price target on LNKD is $88.
  6. LinkedIn is selling at over 23 time trailing annual revenues.
  7. The lock up on insiders selling shares expires in November.

Disclosure: I am short LNKD through November 100/105 bear call spreads.