To put that strength in perspective, LinkedIn Corp (NYSE:LNKD) earned 20% of revenue from subscriptions, 57% from job search tools, and just 23% from advertising in the first quarter. Nearly 85% of Facebook’s revenue was from advertising. There’s no question that LinkedIn has a great model and notable brand recognition. But it also has a trailing price to earnings ratio of around 500 and a forward P/E of around 90.
Those are heady numbers that require virtually everything to go right to justify. This is a good company that’s just too expensive right now. Investors should stay away.
Wall Street usually gets pricing right over the long term, but that can require often painful short-term ups and downs. Groupon Inc (NASDAQ:GRPN)’s advance is based on rosy views of a business shift that is uncertain at best. Tesla Motors Inc (NASDAQ:TSLA) has great technology, but there’s still a long way to go before it’s mainstream enough to support the company’s price tag. LinkedIn Corp (NYSE:LNKD), meanwhile, has a good business model, but investors are stampeding in, sending the shares to likely unsustainable highs.
The article A Trio That’s Moved Too Far Too Fast originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.