In early July, I wrote a favorable piece regarding LinkedIn (LNKD) which was centered around the potential for shares to retest $120. My belief in the stock rested solely on the upward momentum the company had experienced in June after a shaky May which was capped off by sector-wide selling in response to Facebook's (FB) failed IPO. Overall, it became an article that was met with widespread criticism from readers accusing me of overlooking some important factors such as the company's astronomical P/E ratio.
Two moths later, my article encouraging readers to take profits as shares topped $120 was met with almost total agreement from readers who agreed in unison that valuation was inappropriate and unsustainable.
If I was left to wonder, my own personal experience has shown the negative attention this stock receives from average investors. The P/E ratio near 900 adds a risk most are unwilling to accept. Add to that the fact shares have retraced sharply all three times the stock has momentarily climbed over $120 and long term investors are thrown another red flag.
Still, everyday traders tend to have little influence over a stock and its direction. Such privileges usually belong to both the institutions and day traders which make up the bulk of the company's 10-day average volume of approximately two million shares. For them, this stock has become one of the more consistent trades on the market. The company's growth has been steady and that is only expected to continue. Shares are off nearly 15% from that proven $120 resistance and are coming off a second quarter report which sent the stock up 14%.
As the company gets set to report earnings Thursday, investors seeking a long term investment still must look elsewhere. Although the company provides an intriguing business model in an environment where people desperately search for jobs, it still lacks the necessary financial numbers to justify a sustained upswing.
However, come earnings season LinkedIn may prove the safest short term investment investors can bet on. Through six quarterly reports, the company has failed to miss on any. The last three times the company has reported, shares have gained. With earnings in the midst of 101% earnings growth this year and anticipated to grow 120% next year, investors may also be encouraged to momentarily overlook current fundamentals.
Now with a wave of companies cutting future growth projections, investors may fear a similar approach by this company's management. However, with full year earnings next year projected to come in at a manageable $1.24, risk of such a move still seems meager.
With shares holding above $100 for much of the past seven months and with Facebook already providing solid earnings, reward may again temporarily outweigh risk for a stock many remain hesitant to touch.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.