Shares of professional networking website LinkedIn (LNKD) are soaring on Wednesday after Barclays slapped a $250 price target on its shares. Barclays also upgraded LNKD stock from “equal weight” to “overweight” — LinkedIn stock jumped more than 4% on the news.
In a nutshell, Barclays made the case that LNKD stock currently represents an opportunity — precisely because it’s been so awful recently.
Down 7% in 2015, before today’s pop, the firm thinks recent price weakness translates to a buying opportunity for investors.
Although LNKD actually met or topped Q1 expectations for revenue and earnings per share in April, the stock took a 20% hit as the Q2 forecast — you know, the quarter LinkedIn will report on July 30 — was light years away from where Wall Street expected it to be.
Personally, I love LinkedIn’s business, but think LNKD stock is an overvalued nightmare. I’ll tell you why in a second, but first let’s hear from one LinkedIn bull, because after all…
Not Everyone Agrees With Me
One of my colleagues here at InvestorPlace is keen to disagree with my dire outlook on LNKD stock.
Chartered Market Technician Tyler Craig thinks LinkedIn stock is on the verge of a rally. His logic, not surprisingly, is driven by what he views as some awfully bullish technical signals:
“Over the past week, LinkedIn’s technical posture has improved notably. It now sits well above its 20- and 50-day moving averages, and with a higher pivot low and higher pivot high in place, LNKD has returned to an uptrend.
“Today’s rally is vaulting LNKD above a pivotal resistance level, making it a breakout worthy of exploitation. Further buttressing the case for a bullish play here is the massive unfilled gap created by the aforementioned earnings drop from May.”
Tyler goes on to recommend a LNKD options trade based on its recent activity. It may very well turn out to be a good call.
Still, it’s a trade. I tend to approach stocks with the outlook of a long-term investor, since I firmly believe the tenet that short-term stock fluctuations are essentially unpredictable. So for me, I think of technical analysis much like former investment manager Ralph Seger does: “One way to end up with $1 million is to start with $2 million and use technical analysis.”
I tend to side more with InvestorPlace‘s Tom Taulli, who reiterated a bearish stance on LNKD stock after its last quarterly report, citing challenges to its fundamental business:
“There’s deterioration in display advertising, which is something that has impacted other Internet operators including Yahoo! Inc. (YHOO). Advertisers have been moving toward more automated solutions that are tied to demographics and user behavior. LNKD noted that display advertising spending declined 10%, specifically pointing to issues in Europe.”
That sort of analysis, to me, is far more convincing than the “well, this moving average went this way, and so did this one” rationale.
With decelerating user growth, troubles in advertising and concerns over the ability to upsell the recruiting business — LinkedIn’s biggest segment by revenues — you’ve got plenty of cause for concern.
Which is why I have no earthly idea how anyone can defend LNKD stock at its current levels. Shares currently trade for 66 times forward earnings, roughly twice the 34 forward P/E of Facebook (FB) stock.
In what universe does that make sense? I’ll field this one: a universe where LNKD bulls make boatloads of money if they buy at current prices.
So in other words, not this universe.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
