LinkedIn Corp (LNKD): A Bumpy Road To RBC’s $250

Been thinking about buying LinkedIn Corp (NYSE:LNKD) as the social site for professionals lags? Well, RBC Capital says the wait is over and now is the time to buy. Analyst, Mark Mahaney raised his view on the stock to "Outperform" from "Sector Perform" with a price target of $250 – upside potential of 15.91% to target as we type.

For the three people who might not know, LinkedIn operates an online professional network. The company, through its proprietary platform, allows members to create, manage, and share their professional identity online; build and engage with their professional networks; access shared knowledge and insights; and find business opportunities.

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Mahaney cites four reasons for LNKD's laggard behavior, "Over the past 6 months LNKD shares have traded down 13% vs. a 12% increase in the S&P 500. Drag Issues have included: 1) overly aggressive Street estimates, 2) a heavier than expected investment outlook for '14, 3) a greater-than-expected slowdown in Talent Solutions revenue growth, and 4) uncertainty over Marketing Solutions format changes."

However, he believes the quartet of concerns is a thing of the past and the stock should respond. The RBC analyst tells investors, "The first issue has been addressed – Street '14 EBITDA estimates have been reduced 11% since the beginning of this year. And we believe LNKD's '14 investments – salesforce buildouts, product and market expansions, and acquisitions – are coming from a position of strength against large TAMs. Our very recent proprietary work helps address Drag Issues 3 & 4. Hence, the Upgrade."

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Looking at the Internet Information Provider's stock chart, LNKD will need to break through a descending line of resistance, marked by a series of lower pivot-point peaks. You can see what we are talking about on the chart below.

Sticking to the tech company's chart, LinkedIn will need to make its way through additional resistance at $230 and then $240 before making contact with another technical foe at Mahaney's $250 target. The path could be herky-jerky.

 

Fundamentally, evaluating high-flyers is a tougher task as valuation metrics can drop dramatically if/when Wall Street falls out of love with a stock and is no longer willing to justify the unjustifiable.

However, we'll take a stab at LNKD's chances of hitting $250 based on the company's recent price-to-sales (P/S) ratio. Since going public, LinkedIn's has traded at an average of 18.7 time sales – hold on a second, feeling a little dizzy – today the stock trades with a P/S ratio of 16.44.

For 2014, analysts have set a consensus target of $2.11 billion for the top-line. To trade at $250, technical roadblocks notwithstanding, LNKD requires a P/S ratio of 14.28 using 2014's sales consensus. At the average P/S ratio, LinkedIn would price out at $327.36.

Overall: Based on its historical P/S ratio, LinkedIn Corp (NYSE: LNKD) has a legitimate shot to hit Mark Mahaney's $250 price target and beyond; however, investors might be rewarded by waiting for LNKD's price to break the downtrend line of resistance before pressing enter on that buy order.