Competition from a variety of fronts could overwhelm the firm's network effect, inevitably disrupting its business model. LinkedIn's business model is relatively unproven, and historical growth has masked all cyclicality, which may be severe.We expect the firm's free cash flow margin to average about 6.4% in coming years, and the firm had no debt as of last quarter. LinkedIn has an excellent combination of strong free cash flow generation and low financial leverage.On its website, members create, manage and share their professional identity and build out their professional networks in order to facilitate a more productive and successful career. LinkedIn operates the world's largest professional network on the Internet in over 200 countries and territories.Return on invested capital (excluding goodwill) has averaged 72.5% during the past three years. The firm has been generating economic value for shareholders for the past few years, a track record we view very positively. LinkedIn earns a ValueCreation™ rating of EXCELLENT, the highest possible mark on our scale.We compare LinkedIn to peers Facebook (FB), Google ( GOOG), and Yahoo (YHOO). This process culminates in what we call our Valuentum Buying Index (click here for an in-depth presentation about our methodology), which ranks stocks on a scale from 1 to 10, with 10 being the best. We think a comprehensive analysis of a firm's discounted cash-flow valuation and relative valuation versus industry peers is the best way to identify the most attractive stocks at the best time to buy. Management probably agrees, but you won't hear them admit it. In fact, we think shares are fairly valued at $106 each, about half of where they are trading at. Still, we continue to believe the firm is overvalued. Hard to believe that management teams can actually create economic value this way, but it has happened. LinkedIn's ( LNKD) management recently decided that its stock price had gotten so far out of whack that i t decided to raise equity.
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