How Overvalued is LinkedIn?

This past week LinkedIn had its IPO. As with other tech stocks, I like the product, I simply dislike ludicrously high PE ratios. The stock is trading up far higher than its IPO offering price. The WSJ said "At 641 times the 2010 net income of Exxon — that’s the multiple for LinkedIn's stock right now ; Exxon would have a market value of $19.8 trillion."

The stock is trading today at roughly 39 times its annual 2010 revenue, by contrast the software industry trades at a five year average of 3.4 times revenue.

This is a sign of a market frenzy - a bubble top - which implies a crash in all types of stocks will occur. Remember Nasdaq in March 2000 at over 5,000 and then it crashed to 1200?

Investors should be ashamed of themselves for paying these type of prices. This is why I like bonds because they are more logically priced then equities.

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About the author

Don Martin, CFP®

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