P/E is market cap divided by profits. Your comment about increasing revenues by 50x is non-sensical.
Consider a company with $100M in revenue, $1M in profit, and a market cap of $1B. PE is 1000. Now say this company has a shot at doubling revenue in the next few years without incurring additional cost. They will then have $200M in revenue, $101M in profit, and the PE will be 10.
Just looking at P/E in isolation is like judging a programmer by how fast they can type. You need to take a broader approach to reading financials and understanding the underlying business.
I haven't followed LinkedIn close enough to have an opinion on the current valuation. You may be right that it is overvalued, but the PE ratio isn't a very good indicator in isolation of expected future earnings.
Consider a company with $100M in revenue, $1M in profit, and a market cap of $1B. PE is 1000. Now say this company has a shot at doubling revenue in the next few years without incurring additional cost. They will then have $200M in revenue, $101M in profit, and the PE will be 10.
Can someone provide a concrete example of a company that has doubled revenue in a few years without incurring additional cost? I realize that it is possible, but I'd love to see where this has actually occurred.
It is uncommon in most industries, but quite common in pharma and theoretically possible in tech. I am not in front of a bloomberg terminal, but off hand I believe Google doubled its quarterly revenue in 1 year. Something like $800M-> $1.5B and added just 2000 employees[1]. That is why the stock went from $110->$400 in the first year of being public.
It is not uncommon for small pharma companies to have 1000% increases in revenue with little cost increase, especially if the companies don't manufacture or do marketing and just take royalies from big pharma.
[1] My memory is not perfect, but I was invested at the time and paying close attention. I remember being blown away that their revenues doubled and they only cost they added to the business was mostly non-search related activities.
Consider a company with $100M in revenue, $1M in profit, and a market cap of $1B. PE is 1000. Now say this company has a shot at doubling revenue in the next few years without incurring additional cost. They will then have $200M in revenue, $101M in profit, and the PE will be 10.
Just looking at P/E in isolation is like judging a programmer by how fast they can type. You need to take a broader approach to reading financials and understanding the underlying business.
I haven't followed LinkedIn close enough to have an opinion on the current valuation. You may be right that it is overvalued, but the PE ratio isn't a very good indicator in isolation of expected future earnings.