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Social Networking Series: LinkedIn

Continuing my series of recent social networking IPOs is LikedIn. LinkedIn has an interesting valuation, to say the least, the company made $0.26 a share and is trading at $246.13. This mean the company has a PE of 947. (I usually like companies with PEs of 10 - 15) The market is paying very high multiples for this company because it believe the company has significant growth potential.

There has to be another reason why the market is paying such a high multiple for this company. Lets analyze the balance sheet, LinkedIn has a current ratio of 2.45 this is good, (I like companies with current ratios of 2 or higher). The company also has no long term liabilities which is a plus. Because this business requires little capital and infrastructure, most of LinkedIn’s assets are cash and marketable securities. LinkedIn’s debt ratio is 0.34, most of its funding comes from stockholder equity. All and all, this company has a strong balance sheet.

The conclusion, good balance sheet, weak earnings, high valuation. Would you invest in LinkedIn.