Categories Technology

Is Limelight Networks (LLNW) stock overvalued after reaching a 9-year high?

Shares of Limelight Networks, Inc. (NASDAQ: LLNW) gained over 102% to a 9-year high of $6.07 on Thursday, backed by bullish outlook. The stock has risen over 146% in the past six months. It is estimated that video-delivery platforms would thrive in the future, aided by the increase in viewership of online content.

Investors can expect to achieve capital appreciation as the high valuation offers bigger returns. Limelight continues to expand the business, reinvest money earned to increase profitability and lift the overall value of the business. The company believes that mobile phones would continue to be the primary mode of interaction for online content users.

analyst stock valuation high or low

The popularity of online videos is growing fast, making it the primary mode of video consumption. The company believes that as more content is made available in 4K resolution, more consumers would want to consume the higher-quality content, resulting in increased strain on Internet architecture and infrastructure.

The content delivery traffic growth rates are anticipated to continue rising, backed by increasing consumption of rich media content and larger file sizes, migration to the cloud, and continued growth rates of mobile device usage. This is likely to outpace falling average selling prices in the industry.

In the fourth quarter, Limelight swung to a profit from a loss last year, driven by a 37% jump in the top line. The business momentum accelerated primarily due to significant participation in multiple live and on-demand OTT launches by certain large media companies. Looking ahead, the company expects the top line to grow at a faster rate than the bottom line due to an increase in costs and expenses.

Read: Adobe stock hits record high amid cheaper competition

The company’s shares remained above the 50-day moving average of $5.04 and the 200-day moving average of $3.85. After taking into consideration the price/earnings-to-growth (PEG) ratio of 6.06 and forward price-to-earnings (P/E) of 51.91, the stock is termed as overvalued by the investors as the PEG exceeds 1.0 and the P/E ratio is high.

However, the PEG ratio is considered to be an indicator of a stock’s true value and the P/E could mean that high growth rates are expected in the future. Thus, the stock is likely to head higher. The market analysts, meanwhile, expect a decline in earnings in the near-term, due to the investments in video delivery and marketing.

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