Short Sellers Set to Target LinkedIn
Shares in LinkedIn are expected to come under downward pressure this week, as they attract the attention of aggressive traders who are prepared to bet on a fall in the business network’s stock price.
On Tuesday, restrictions on short selling the stock will be lifted.
A short sale involves borrowing stock and selling it, in the hope that the price falls and it can be bought back more cheaply – generating a profit.
“Brokers are forecasting, in the near term, that the stock is way overbought and that we should see a price decline as soon as the stock is available to short next Tuesday,” said Timothy Murphy, of Trade Monitor Idea, a platform that connects brokers’ trading recommendations with more than 170 hedge and quant funds, as well as “long-only” asset managers.
Mr Murphy said sell recommendations on LinkedIn are based on a short time horizon of five to 20 days. “People think it’s a good business with good prospects, but the valuation is stretched and the stock price is overdone,” he said.
Nicole Sherrod, managing director of the trading group at retail brokerage TD Ameritrade, said shorting the shares was a trending discussion topic among day traders.
In the past, technology companies, notably Amazon , have been big targets for short sellers betting that lofty valuations sparked by bullish growth prospects are too high.
However, complicating the picture for short sellers of LinkedIn is the small size of its float: just 9m shares, as the group sold only 10 per cent of its stock in the initial public offering.
“There’s no way you can find a borrow, there was such a limited amount of stock sold. It would be prohibitively costly to put on a short,” said Doug Martin, a trader at Kitano Capital, a private investment firm.
LinkedIn’s share price rose 109 per cent to $94.25 on Thursday, but fell to $93.09 on Friday.