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
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
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
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!
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.
Fool contributor Sean Williamsdoes not own shares of any companies mentioned in this article. He would like to remind you not to forget about our friends in Japan who could use a helping hand. You can follow him on CAPS under the screen name TMFUltraLong. eBay and priceline.com are Motley Fool Stock Advisor selections. MercadoLibre and OpenTable are Motley Fool Rule Breakers recommendations. Motley Fool Alpha LLC has opened a short position on MercadoLibre, which is a Motley Fool Big Short short-sale pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never needs to be sold short.