I think the best word to describe Linkedin’s (LNKD) stock performance in 2015 would be gappy. The stock broke out to new all time highs back in late February, up 20% on the year after gapping 10% on better than expected Q4 results, and then a month ago the stock gapped to new 2015 lows, down 18% in a single day following worse than expected Q1 results and Q2 guidance:
What’s most interesting to me about the ytd charts is the volume of 7 million shares on the upward 10% gap in February vs the nearly 17 million shares that traded on the 18% downward gap on May 1st. Since May 2nd, LNKD has averaged 3 million shares volume a day, which has been well above the one year average of about 1.8 million shares a day for the last 12 months. Investors have been in liquidation mode for the last month.
The three year chart below shows a stock that is in no man’s land, very near the mid point between a relative high at $250 and low at $150:
The island gap lower is not pretty to say the least, but could today’s 3% bounce signal the stock is trying to put in a near term bottom and attempt to fill in a portion of the May 1st gap, possibly back towards the 50 and 200 day moving averages that are converging near $230:
On most valuation metrics LNKD shares screen as expensive, 100x expected earnings and almost 9x expected sales. Sales growth is what should be the focus in my opinion, and while decelerating from its torrid pace above 45% for the last 2 years, 30% expected sales growth from here on out ain’t too shabby.
I would add that for those who think that Twitter (TWTR) and LNKD are unique social networking properties and should be on short lists as acquisition targets, both sport about $24 billion market caps, while TWTR’s sales are expected to grow at a faster pace in 2015 (~58% vs LNKD’s 31%), LNKD is expected to have $2.9 billion in sales vs TWTR’s expected $2.2 billion. Both companies have earnings, and both have about 10% of their market cap’s in cash, net of debt. A deal for either would have to come from these levels at an eye-popping premium that would make them close to the largest tech deals ever at price to sales levels in the low teens! That is obviously pie in the ski sort of stuff, but I think the crux of the argument is that while both companies have hit growth speed-bumps in 2015, both have a considerable amount of scarcity value that may not be reflected in their public valuations.
I am already long TWTR, but playing for a dead cat bounce in LNKD in the near term also looks attractive:
Trade: LNKD ($200.60) Buy July 200/220/240 call fly for 4.75
-Buy to Open 1 July 200 call for 7.90
-Sell to Open 2 July 220 calls at 1.80 each or 3.60 total
-Buy to Open 1 July 240 call for .45
Break-Even on July Expiration:
Profits: between 204.75 and 235.25 make up to 15.25 with max gain of 15.25 at 220
Losses: of up to 4.75 between 200 and 204.75 & between 235.25 and 240 with max loss of 4.75 below 200 or above 240
Rationale: This is essentially a stock alternative long with defined risk. The breakeven is only slightly higher than where the stock is trading and losses are capped at 4.75 if the stock fails at these levels. The next earnings should report in August so this is not an event trade, but rather a sentiment one. The stock is up 3% today and we don;t love chasing up days so we’ll start small here.