Linkedin Corporation (NYSE:LNKD)
Yes, LinkedIn’s back for a third go-around, and I have to say I’m hoping for a best out of five, because it’s beaten the TMFULOI index two rounds running! LinkedIn’s fourth-quarter earnings results vaulted its share price significantly higher despite projections of 45% revenue growth from management this year and a tapering to 38.9% according to the Street’s estimates in 2014. I won’t deny that LinkedIn’s management is making smart moves to attract reader clicks by focusing more on business news, or that most of its metrics are heading in the right direction, but it’s a simple matter of whether or not LinkedIn can support a price-to-cash flow of 82 — and resoundingly I’d say, “No!”
Aspen Technology, Inc. (NASDAQ:AZPN)
Aspen, a designer of optimization, conceptualization, and supply-chain management software, is another new addition to this list. Aspen has been clicking on all cylinders since the recession, but it’s struggled to produce big profits as it’s spent much of its cash flow from operations on R&D and retiring its now paid-off short-term borrowings. Shares roared higher in late January when it, like LinkedIn, soared past relatively tame estimates. However, according to statistics available on Morningstar, every valuation or margin metric would be considered worse than the industry average. At 76 times forward earnings and — generously extrapolating its cash flow through the first six months — 28 times 2013’s projected cash flow, I’m not that impressed.
SolarWinds Inc (NYSE:SWI)
Thus far, Fool Rex Moore’s analysis of SolarWinds has kicked my valuation formula’s behind, with SolarWinds also holding the unique distinction of actually producing a higher TMFULOI score in all three screens to date. The IT management software company’s “freemium” model that spurs customers to try out its software has been extremely cost-effective and resulted in top-notch margins. However, as I stated in June, I can’t see its peers, like Cisco Systems, Inc. (NASDAQ:CSCO), letting SolarWinds’ business model go uncontested and would presume they’ll slowly work their way into SolarWinds’ niche. Revenue growth is also slated to decelerate from 36% in 2012 to a range of 23% to 26%, according to management in 2013. I’m once again calling this valuation unsustainable.
Mercadolibre Inc (NASDAQ:MELI)
Last, but certainly not least in the pricey column, is MercadoLibre, the so-called “eBay Inc (NASDAQ:EBAY) of Latin America.” As with ARM, the reason that the company’s shares are so pricey somewhat makes sense given that there’s less e-commerce saturation in the emerging markets of Latin America and thus plenty of potential. However, MercadoLibre is also forced to spend quite a bit on expansion costs in order to support its operations in these emerging markets — all while revenue growth is modestly slowing. I don’t consider MercadoLibre a “strong sell” per se, but it clearly will need pristine earnings results this week in order to maintain its valuation.
The article 5 Stocks You Can Sell Right Now originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Baidu, Tile Shop Holdings, Cisco Systems, and eBay. Motley Fool newsletter services have recommended buying shares of Baidu, LinkedIn, and eBay.
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