LinkedIn Corp (LNKD), Facebook Inc (FB): Looking for a Tech Stock? Check Out Forbes’ “Fastest Growing Tech Companies”

Want to find a winning tech stock? Forbes’ America’s Fastest Growing Tech Companies is a good place to start.

Forbes’ list — which was released on June 5 and will appear in the magazine’s June 24 issue — is in its 11th year. According to Forbes, “Since 2003 a market-cap-weighted basket of each year’s Fast Tech 25 has beaten the Nasdaq, often by a wide margin, except in 2005, 2006 and this past year.”

The inclusion criteria:

–Market cap of at least $500 million

–Annual revenue of at least $150 million

–Sales growth of at least 10% for each of the past three fiscal years and over the past twelve months

–Estimated earnings growth more than 10% over the next three to five years

LinkedIn Corp (NYSE:LNKD)

Forbes ranks its list by average 3-year sales growth. Its top five are LinkedIn Corp (NYSE:LNKD), Facebook Inc (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), 3D Systems Corporation (NYSE:DDD), and IPG Photonics Corporation (NASDAQ:IPGP). I’m going to rank another way.

Top 5 by estimated earnings growth

Earnings growth — cash flow from earnings, actually – is what drives a stock price up over the long-term. So, let’s sort Forbes’ list by estimated EPS growth.

Rank Company Business Est. EPS Growth 12 Mo. Sales Growth 3-Yr Avg Sales Growth
1 LinkedIn Social Networking 51% 80% 102%
2 3D Systems 3D Printers 30% 45% 46%
3 Equinix Data Center Services 29% 17% 29%
4 athenahealth Cloud-based Healthcare Services 27% 29% 31%
5 IPG Photonics Lasers/Amplifiers 26% 17% 46%

Source: Forbes

Valuations

Valuation matters. So, let’s take a look at PE’s and 5-year PEG’s for the companies on my list. The companies are listed by estimated EPS growth.

Rank Company Est. EPS Growth PE (ttm) PE (frw) 5-Yr PEG
1 LinkedIn 51% 701 86 2.1
2 3D Systems 30% 104 35.8 2.2
3 Equinix 29% 64 40.5 2.9
4 athenahealth 27% 202 60.4 3.0
5 IPG Photonics 26% 22 17.3 0.8

Source: Yahoo! Finance; data to June 19

Stocks to consider

Here’s the rationale for honing in on the three I’m highlighting:

–LinkedIn Corp (NYSE:LNKD)– It has the top 1- and 3-year revenue growths, and the top 3-5 year estimated EPS growth. It provides services that are needed in good and bad economic times.

–3D Systems – It ranks high on both 1- and 3-year revenue growth; 1-year revenue growth is roughly the same as the 3-year, and its estimated EPS growth is the second highest. It’s involved in an emerging and disruptive technology.

–IPG Photonics – It ranks high on the estimated EPS growth list and is reasonably valued. I view the medical niche favorably.

This isn’t to say the others on Forbes’ list — notably, tech powerhouse Google — aren’t worth a look.

LinkedIn

LinkedIn Corp (NYSE:LNKD) is a professional networking site that provides a valuable resource in all economic climates. There’s more unemployment and job hunting in bad times, and more job-hopping and employers hiring in good times.