With high hopes of an economic recovery, over-excited investors have pushed Monster World Wide (Nasdaq:MWW) stock price up more than 170% from its low in March. Unfortunately, the new expectations built in to the online job ad site stock price are probably too good to be true.
Rising layoffs means plenty of people are visiting Monster's web pages. But growing web traffic doesn't translate into increased revenues for the online recruitment giant. After all, Monster's fortunes are a primarily function of job hiring activity. When businesses need to hire new employees, job postings and revenues rises. A hiring slowdown, on the other hand, spells trouble for the company.

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While many economists are forecasting a return to positive GDP growth beginning this current quarter, few expect an increase in new job growth. The U.S. Bureau of Labor's numbers for August suggest that things are probably getting worse. Last month, the unemployment rate jumped 0.3% to 9.7%, the highest level in 26 years. 466,000 Americans lost their jobs in August. (For related reading, check out A Review Of Past Recessions.)

A jobless economic recovery means tougher times ahead for Monster, but you would never guess that from its stock valuation. Monster is priced at about 33 times 2009 earnings - more than double its peer group. Looking a bit further out, the stock trades at an astonishing 138-times 2010 earnings. That kind of multiple assumes a dramatic uptick in job market activity, something that's awfully hard to fathom given the latest bureau numbers.

Even if the hiring does stage a comeback, Monster will have to fight to keep its share of the ad market. Sure, Monster possesses enormous brand power, but thanks to exceedingly low barriers to entry, a whole host of internet job sites - Dice.com (NYSE:DHX), Careerbuilder.com, Indeed.com and Craigslist, to name just a few - are giving Monster a run for its money. To make matters worse, employers are increasingly turning to search engine marketing, through providers like Google (Nasdaq:GOOG) and Yahoo! (Nasdaq:YHOO), to get the attention of potential candidates. As recruiters take advantage of new, lower cost recruitment tools, Monster revenues and earnings are bound to get squeezed.

The Bottom Line
Judging by Monster's share price, the market is clearly betting that the its growth will return to rates of pre-recessionary days. But considering the lacklustre employment outlook and the changing competitive landscape, that's a risky bet.

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