unh_hockey
pain is temporary pride is forever
Oh boy. First it was corn ethanol, than gas prices, now security analysis? Todays topic is the “red hot” offering of LinkedIN shares. I decided to log into google and do some digging:
http://www.google.com/finance?q=linkedin
background: Since graham’s day, IPOs have typically underperformed and are usually overpriced. His rationale was that a lot of salesmanship go into hyping the underlying security, basically creating a frenzy based on future ( and usually unsustainable) growth - typically the equity price drops 50-70% of its IPO price. A good case study was my friends company ( one I happen to be working at right now) ; GT solar (SOLR). Their IPO peaked at 13.86 in 2008 and leveled out at the 4-5 $ range which represents a total drop of… 63%! Right on target for what graham said IPOs drop to back in the 70’s! There is a reason this guy was one of the best. (GTs price is doing quite well now, but the underlying fundamentals are strong. Can read on their 10k. Share price is at 11 $, which represents a 15% drop give or take). Long story short, IPOs usually don’t do that well. For every Microsoft, you have hundreds of other duds. ….moving on..
Anyway onto Linked IN. You would think after the 1999 debacle, that people would learn not to buy the hype and buy internet companies with NO underlying value. People were paying out the arse for companies which had virtually no income compared to the equity price. (some actually had net LOSSES) Currently, linked in is trading at something like 87 $/ share. Based on 95 million shares – minus cash on hand, its 7,500 million $ in shares outstanding value. They have 375 million or a price per gross ( I believe gross) of 21 P/E , and a net income of 8 million or a price per earnings of nearly 1000 times earnings.
***!!! Have some people learned nothing? This would be something like paying a kid 1000 dollars for a lemonade stand that earns one dollar per year? (someone more savvy in security analysis can correct me here). I just can’t make sense of this other than that people are absurdly optimistic? Bueller….??bueller?
*on a side note, I was reading an old financial on cisco or some related .com bubble company. Their accounting practices were weird. They listed R&D expenses as “income”. No joke. So even with their overhyped value, their earnings numbers were reported with ‘expenses’ as ‘income’. Like I am not a savvy analyst or anything, but this just makes me wonder…a lot. I’d hate to read enron’s 10K during their high flying years and really got a good idea of pro forma / mark to marketing. * /end tangent.
http://www.google.com/finance?q=linkedin
background: Since graham’s day, IPOs have typically underperformed and are usually overpriced. His rationale was that a lot of salesmanship go into hyping the underlying security, basically creating a frenzy based on future ( and usually unsustainable) growth - typically the equity price drops 50-70% of its IPO price. A good case study was my friends company ( one I happen to be working at right now) ; GT solar (SOLR). Their IPO peaked at 13.86 in 2008 and leveled out at the 4-5 $ range which represents a total drop of… 63%! Right on target for what graham said IPOs drop to back in the 70’s! There is a reason this guy was one of the best. (GTs price is doing quite well now, but the underlying fundamentals are strong. Can read on their 10k. Share price is at 11 $, which represents a 15% drop give or take). Long story short, IPOs usually don’t do that well. For every Microsoft, you have hundreds of other duds. ….moving on..
Anyway onto Linked IN. You would think after the 1999 debacle, that people would learn not to buy the hype and buy internet companies with NO underlying value. People were paying out the arse for companies which had virtually no income compared to the equity price. (some actually had net LOSSES) Currently, linked in is trading at something like 87 $/ share. Based on 95 million shares – minus cash on hand, its 7,500 million $ in shares outstanding value. They have 375 million or a price per gross ( I believe gross) of 21 P/E , and a net income of 8 million or a price per earnings of nearly 1000 times earnings.
***!!! Have some people learned nothing? This would be something like paying a kid 1000 dollars for a lemonade stand that earns one dollar per year? (someone more savvy in security analysis can correct me here). I just can’t make sense of this other than that people are absurdly optimistic? Bueller….??bueller?
*on a side note, I was reading an old financial on cisco or some related .com bubble company. Their accounting practices were weird. They listed R&D expenses as “income”. No joke. So even with their overhyped value, their earnings numbers were reported with ‘expenses’ as ‘income’. Like I am not a savvy analyst or anything, but this just makes me wonder…a lot. I’d hate to read enron’s 10K during their high flying years and really got a good idea of pro forma / mark to marketing. * /end tangent.
