It may be April Fool's Day, but it's no joke that the market has completely erased all of the losses incurred from the tragedy in Japan. For bulls, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near their 52-week highs really deserve their current valuations.
Keep in mind that some companies deserve their lofty prices. Lawson Software (Nasdaq: LWSN ) is riding high this week amid continued buyout speculation and a stellar earnings report released last night. Lawson received an unsolicited bid three weeks ago from Golden Gate Capital to buy the company for $11.25 a share, and traders are bidding up the stock in anticipation of a potential second suitor. But some companies potentially deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Order a pizza
This week I'm taking a very Internet-centric theme and looking closely at the valuations of Internet-based businesses. First on my list of potential sells: OpenTable (Nasdaq: OPEN ) .
It's not that OpenTable's business hasn't been exceeding expectations; it's that its stock price is exceeding reality. Despite years of double-digit growth, the company is trading at a staggering 25 times sales, 24 times book value, and 182 times its trailing twelve-month earnings. To make matters worse, food costs and gasoline prices are rising, which could put a severe crimp in consumers' plans to eat out -- a potential blow to the company's electronic reservation software. You could just about throw a dart in the business services sector and have it land on a cheaper company. In the meantime, shareholders may want to stock up on the Pepto.
I swear I don't have it out for the travel booking sector, but the valuations here are in the clouds. I mentioned priceline.com (Nasdaq: PCLN ) as a potential sell in early January, and it's responded by slapping the wrong out of me almost weekly. Now there's a considerably worse offender in the sector: Travelzoo (Nasdaq: TZOO ) .
Travelzoo is a priceline.com wannabe that just isn't. It trades at more than twice the forward P/E of priceline.com despite a slower growth rate and considerably less name recognition. I'm not high on priceline.com, so don't get me wrong, but paying 24 times book and almost 10 times sales for Travelzoo -- which could get hammered if jet fuel prices continue to rise -- seems a bit ludicrous. I'd consider sticking this stock in the last row of coach if I were you.
Buy it later!
MercadoLibre (Nasdaq: MELI ) , the little eBay (Nasdaq: EBAY ) of Latin America, rounds out this weeks list of potential sells. Although the Motley Fool Rule Breakers team would disagree, the valuation on MercadoLibre has me shouting "return to sender."
Yes, you are going to get a faster projected five-year growth rate with MercadoLibre when compared with eBay -- 30.8% vs. 9.4%. But you're turning down a company that churned out $2.75 billion in operating cash flow over the trailing 12 months in eBay for a company that produced just $67.9 million in operating cash flow in the same period and trades at more than 64 times its trailing-12-month earnings. eBay appears to be a far better value.
What's your take on these Internet-based highfliers? Do they still have room to run or do short-sellers have their safety pins in hand ready to burst their bubble? Share your comments below, and consider supercharging your investing prowess by adding these stocks and your own personalized portfolio of companies to My Watchlist.