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LinkedIn Discussion Questions: If you wanted to buy LinkedIn’s stock would you be willing to pay...

LinkedIn Discussion Questions: If you wanted to buy LinkedIn’s stock would you be willing to pay more than the value you derived in?

What other factors (e.g., low float, dual class of shares) may be contributing to LinkedIn’s market valuation?

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The investment in the stock is described as 'easily complicated'. There is no formula or fixed set of valuation similar to bonds in the valuation of a stock price. The stock price tends to be volatile and it resonates more because of sentiments rather than the fundamentals of the company. if the economy is doing well overall then people tend to buy even stocks which are completely junk. On the other hand, hard times in the economy mean there will be no investor even for a fundamentally strong company.

The investment in LinkedIn stock depends upon many such factors. I would be interested in knowing its EPS, expected growth in EPS, price to earnings ratio and overall growth prospects of the company. The investment always relies upon trying to find the intrinsic value of the stock. The price to earnings ratio or PE decides whether it is cheap or expensive. If the current price is more than what I have derived but its PE is lower then it is still worth buying. Benjamin Graham, the mentor of Warren Buffett has mentioned that a fundamentally strong scrip is worth buying in the range of 7-8 PE. However, it is overvalued above the PE of 15.

There are other factors also which need to be considered such as the phase of the economy as well as industry. What are the sources of revenue of the company? The professional social network derives its revenue from subscriptions and advertisements. In times of recession, advertisement revenue sees a major decrease and that factor needs to be considered.
The fixed cost of such companies tends to be low but still, it needs to be compared against the peers.
The investment in the stock is based on fundamental valuation and it is complicated.

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