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I agree. I can't see any investor with half a brain buying any company with a P/E of 2,147 (LinkedIn)
by firefoxman1 15y ago
I agree. I can't see any investor with half a brain buying any company with a P/E of 2,147 (LinkedIn)
- fennecfoxen 15y agoI can see an investor with half a brain buying a company with a P/E of 2147 - heck, some newer companies with lots of potential have negative P/E. What you need to make up for it is a really nice growth story. Now, LinkedIn has an okay growth story, don't get me wrong. The problem is it's just not good enough. Let's do some back-of-the-envelope comparisons. Consider a relatively low-risk investment: an intermediate-term corporate bond fund. You can get about 4% yield these days. At the current market cap of $7.4 billion, that's earnings of roughly $300 million a year. That's roughly in line with LinkedIn's revenue, but they also need to pay for things like engineers and server farms. In other words, you're going to need a heck of an earnings growth story just to break even against a safe investment - and LinkedIn is nowhere near as safe as a corporate bond fund.
- firefoxman1 15y agoThat's why I prefer to look at PEG instead of P/E. It shows you the price-to-earnings relative to the earnings growth. Quite handy.