Is LinkedIn Fenced In? What of the Other Recent IPO's

As I noted a few weeks ago we exited out of our short position in LinkedIn $LNKD at a lost of just over 28%.  While I still believe that the company is over valued I just couldn't stand in the way of the tape any longer.  This is a good example of a good company but bad valuation.  I think that LinkedIn has great products and I use it often but that doesn't mean that it is a good investment.

Trading at 75 times forward earnings it is beyond pricey.  Barron's carried a story regarding the run up in the stock price here.  The stock is up 70% since its IPO price of $45 in May 2011 although it has traded between a 52 week range of $55.98 to $122.70.  Besides sporting an ultra high P/E ratio, LinkedIn appears overvalued on most other fundamental metrics including Price/Book and Price/Sales.

LinkedIn isn't the only stock that I have found in this social and recently minted IPO group.  We also had a short position in Groupon $GRPN which has yet to turn a profit.  Others that I dislike in this category are Pandora Media $P which has a forward P/E of 601.7 and Angie's List $ANGI yet to make a profit.  Pandora and Angie's List have tanked since their initial IPO's last year and I would expect further weakness if there is any downturn in the economy.  Most of these companies rely upon ad revenue to support their business.  If companies cut back on advertising or find that they are not getting the results they expected these names could get punished.

Just take a look at yet another company coming out on Friday Yelp $YELP soaring 64% from it's initial price of $15.  This sets us up for the big Facebook IPO coming out sometime this year.  With expectation of a valuation between $75 and $100 billion this too may quickly become an overvalued stock right off the bat.