Shares of Web-based reservations specialist OpenTable
In a cleverly titled "Trouble on the Menu?" piece, Christopher C. Williams pokes holes in the stock's sails.
- Shares are selling for 75 times next year's projected profitability.
- Competition looms, in the form of IAC's
(Nasdaq: IACI)Urbanspoon, which is testing a cheaper tablet-based electronic reservations book.
- Insiders have sold $25 million of stock over the past six months.
- Short interest represents a chunky 25% of the stock's public float.
I'm not going to refute those claims, but we need to consider the source. It was 13 months ago that Barron's also ran a bearish "Reservations About OpenTable" article by Tiernan Ray. Some of the naysayer talking points may feel a bit familiar.
- The stock was pricey then, fetching 68 times next year's projected profitability.
- Competition wasn't as much a concern as the crummy state of the liquor and upscale dining segments. Ray singled out OpenTable customer McCormick & Schmick's
(Nasdaq: MSSR)17% slide in comps -- despite OpenTable's 18% uptick in revenue during the same quarter.
- A secondary offering included shares being unloaded by OpenTable's CEO, CFO, and -- wait for it -- early investor IAC.
Now here's the clincher: OpenTable's stock has more than doubled between the two articles. Yes, the stock was overpriced by every valuation metric last summer, yet OpenTable went on to trounce analyst expectations in every single quarter since last year's IPO. Insiders have been selling all the way up.
I'm not going to suggest that OpenTable is a screaming bargain, but if you can more than double your money in a year through a stock selling at a shocking 75 times year-ahead earnings, how does one define "overvalued" exactly?
OpenTable is actually in better shape now than it was last summer. Revenue in its latest quarter grew at a 37% clip, more than twice as fast as last year's second quarter. The recent TopTable acquisition should help beef up its international presence -- which until now has been a drag on earnings. There's also Spotlight, OpenTable's Groupon-esque attempt to grow incremental revenue by offering daily deal vouchers. It's a model that has propelled shares of OpenTable, The Knot
Eating bears? That's what OpenTable does for a living.
Have you ever avoided a stock that seemed overpriced, only to find it trading substantially higher later? Share your thoughts in the comment box below.
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