LinkedIn Corp (LNKD), Workday Inc (WDAY), And A Small-Cap Company In A Large-Cap’s Stock

Another important component to valuing a company is expected growth. LinkedIn Corp (NYSE:LNKD) has 3 times more revenue than Workday, and it continued to grow at more than 100% year-over-year until this last year. This means that with $500 million in revenue, Linkedin was doubling in size. Workday has already slipped under the 100% level and hasn’t even crossed the $300 million per year level. This number is not encouraging, especially when it trades with a price/sales of 35.52, compared to LinkedIn Corp (NYSE:LNKD)’s 19.3 times sales. With Workday Inc (NYSE:WDAY) trading at such a high premium, the market is almost expecting five years of 100% growth; but judging by recent performance, it’ll be lucky to produce one more year of such growth.

Conclusion

Just to be clear, I think both LinkedIn Corp (NYSE:LNKD) and Workday Inc (NYSE:WDAY) are very expensive. Yet Workday’s valuation is above and beyond what’s rational. Personally, I find it difficult to buy a stock trading at 35.52 times earnings, much less 35 times sales! Workday isn’t even profitable, it is already seeing slowed growth, and the short interest continues to build. In my opinion, this stock is setting itself up for a massive downtrend. Now, I’m not suggesting that it will be a long-term downtrend or that Workday won’t become a great company. But at this point, it’s just a small cap company in a large cap’s stock, and sooner or later, the two will align.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends LinkedIn Corp (NYSE:LNKD). The Motley Fool owns shares of LinkedIn.