I’m taking a break from finals studying because of this crock of you-know-what from Shira Ovide of the Wall Street Journal. Ovide contends that Linkedin’s valuation is crazy because if Apple had a similar price-to-revenue ratio, it would be worth 3 trillion. While this isn’t factually false, it’s just a dumb comparison to make. Either Ovide is a little bit stupid or is engaging in intellectually dishonest journalism in order to be able to write flashy headlines.

My favorite comment in this story is the one where someone says “i could probably write a better article if i was drunk and high.” Yup.

Why is this ratio (P/R) a silly comparison? After all, P/E is one of the most-used ratios to look at in valuating companies and P/R is similar. Basically, the idea is that a company’s valuation (our P) should reflect current and future earnings, which is what the price is derived from. As such, the current revenue (that’s the R) and especially current earnings (E) should not be completely divorced from it. So, Finance 101 tells us that overly-high ratios means a company is “over-valued” and over-low ratios means a company is “under-valued.” But this is too simplistic.

(Side note: Also, the general practice is definitely and for good reason to look at P/E – price to earnings, not P/R, but I think the P/E ratio is so high at this point that I think she even realized that using words like “quatrillion” in headlines sounds like some sort of joke.)

Apple and Linkedin are companies at very different stages of their growth. Linkedin is tiny and immature — they literally just started turning a profit this year. If managed correctly, it will grow much more. It made a little over 15 million last year, which is practically negligible. Apple, on the other hand, is a huge company that is basically at maturization. To compare their P/R ratios is like having a precocious 14-year-old science fair winner and a NASA scientist take a test on astrophysics and then using their scores to determine their future academic potential (without taking into consideration age or experience). It’s just silly.

Linkedin, at it’s current price, reflects a $8 billion valuation. To compare, Apple is currently valued at $300 billion. So, despite Ovides’ silly headlines, the market does realize that Linkedin is a much smaller, much riskier company. Making the argument that a $8 billion valuation still is on the higher side is understandable and probably even right, but flashing around numbers like “3 trillion” and making it sound like it’s being valued higher than Apple or the GDP of the United States is incredibly intellectually dishonest.

In short, if you were going to look at ratios, earnings is more important than revenue. But even apart from that, focusing on either the P/E and P/R is not a great idea. The revenues of Linkedin as a point of comparison just have no meaning at this point because it’s not really a good reflection of it’s potential value. Only when the company has had a little time to mature does it mean anything. Going even further and comparing Linkedin’s ratios with a very large, mature company is idiotic.

The reason I’m calling this bad journalism is because if you know anything about finance, what I just detailed out here is really not very high level and is plainly obvious to anyone with a basic finance education. They for sure should know better. The Wall Street Journal is betraying the public’s trust in publishing this bullshit. But Ovides knows that Linkedin’s IPO is the big news of the moment and the Journal wants to have the catchiest headline — so, who cares about journalistic integrity, right?

Of course, maybe I’m being too harsh. They might all just be idiots.