LinkedIn Corp Shares Have Work Left To Do: A Technical Analysis

LinkedIn Corp LNKD shares rallied hard on Friday, but the up-move did not change the potential bearish technical set-up that has been developing for the stock.

It seems like the market, specifically the tech and social media space, will need to continue to improve if the stock is to reverse this trend. So, does LinkedIn have the fundamentals to push shares through resistance?

What The Bulls See...

• A "real utility" for the business crowd, according to some bulls

• A pristine balance sheet, including a current ratio of 3.90, a debt-to-equity ratio of 0 percent and cash reserves of $2.37 billion

• Positive levered free cash flow of $38.25 million annually

• A long-term uptrend, technically speaking, despite short-term weakness

What The Bears See...

• The valuations are astronomical, including a price-to-book of 8.83 and a price-to-sales of 13.77 

• A market capitalization of $25.92 billion trumps the company's enterprise value of $23.55 billion

• A price-to-earnings ratio of over 80, versus estimated sales growth of 33.40 percent and estimated EPS growth of 47.10 percent

Worth noting, the price chart also indicates the stock could easily fall 10 percent without doing any damage to LinkedIn's bullish macro outlook.

Related Link: A Technical Look At Hewlett-Packard Company

Technical Update

Technicians, in particular, note LinkedIn appears to be in wave “c” of an “abc” correction to the downside with an estimated target –- based on the 100% Fibonacci projection line –- of $187.09.

That Fibonacci projection also corresponds closely with support provided by the broken downtrend line.

Only a close above $215.15 would negate the current short-term bearish set-up. Over the longer term, technicians are bullish on LinkedIn and have targets ranging between $250 and $260.

Overall…

It is tough to rationalize buying LinkedIn on a fundamental basis, as its valuation seems to be beyond the stratosphere.

So, if anyone is looking to buy the stock, it will most likely be on a technical basis. If that's the case, the proper technical entry appears to be at the $185 to $187 range.

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.