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.

IN PICTURES: Eight Ways To Survive A Market Downturn

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.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  2. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  3. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  4. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  5. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  6. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  7. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  8. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  9. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  10. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  1. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!