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TMFDeej (99.47)

Cast your vote for the World's Most Overpriced Stock

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July 23, 2010 – Comments (38) | RELATED TICKERS: OPEN

Step right up, step right up everyone.  It's time to use CAPS's amazing collective wisdom to figure out the most overpriced stock in the world.  

I have read a lot of strong bear cases for expensive stocks made by extremely intelligent investors lately, such as Lululemon athletica (LULU), Netflix (NFLX), and Amazon.com (AMZN).  I don't want to limit this discussion to a small universe of companies so I'm not going to create an official poll, yet.  I'd love to use this post as an open forum for the smart investors in CAPS to talk about what company they believe is the most expensive, overpriced one on the market right now.  It should be a fascinating discussion.  I'm always looking for a few good shorts to add to my CAPS portfolio.  Besides, what better way to procrastinate on a Friday.

I'll kick things off by casting the first vote for...Opentable (OPEN).  

 

Here's what I had to say about the company when I gave it the thumbs down in CAPS late yesterday:

I've been toying with shorting Opentable (OPEN) for some time, believing that it is outrageously overpriced at this level...144 times trailing earnings. For those of you who aren't familiar with the company, it is an on-line reservation system for restaurants that is free for consumers but makes money by charging restaurants for the installation of hardware, a monthly fee, and a charge per reservation.

I recently came across a fantastic write-up on shorting OPEN by Rahul Ray from Independence Capital Asset Partners.

He believes that given that the total North American revenue opportunity for Opentable's core (electronic reservation book) business is about $470 million and as a result its NA business should be valued at $12 to $16/share, assuming reasonable penetration and growth rates.

He adds to that $256 million in potential revenue through the Company's International business, or around $4 to $8/share and $3/share in cash and arrives at a total value of around $19 to $27/share for the company...versus its current share price of $45.

Even with 100% of all restaurants in North America, UK, Japan, and Germany participating in the company's business, which would never happen, Ray says that he can't justify valuing this stock at more than $35/share. He also sees the company's increasing reliance upon growth in Europe to drive growth as a major weakness, given the economic problems and austerity measures that are taking place there. 

I opened a short in CAPS on, well OPEN yesterday at $44.82/share.

So there's my idea.  What's yours?  Let's try to crank this up into a fantastic discussion.  If we can get a consensus on several stocks, we can create an official poll and nominate a "Winner" for CAPS most overpriced stock.

Deej 

38 Comments – Post Your Own

#1) On July 23, 2010 at 10:19 AM, russiangambit (30.00) wrote:

CRM and LULU as well.

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#2) On July 23, 2010 at 10:21 AM, ocsurf (< 20) wrote:

I think the whole market is overpriced!

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#3) On July 23, 2010 at 10:26 AM, TMFDeej (99.47) wrote:

Excellent point about Salesforce, Russian.  I strongly considered shorting it in CAPS a while ago until I spoke with someone who swears by it.  I strongly suspect that it is overvalued, but I haven't been able to pull the trigger yet.

Thanks for the entries.

Deej 

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#4) On July 23, 2010 at 10:28 AM, TMFDeej (99.47) wrote:

I knew that someone was going to say that everything is overvalued.  You win the prize for being first, oc ;).  Anything out there that you see as being more overvalued than average?

Deej

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#5) On July 23, 2010 at 10:34 AM, JakilaTheHun (99.94) wrote:

CRM has always seemed overvalued, but it's also a dangerous short, because they have so much room to grow. 

I agree with you on OPEN.  I have thought it was very overvalued for a long while now.  It's not a bad business, but I can't see how it could possibly be worth the price it's selling for under any circumstances. 

I still think Blue Nile (NILE) is overvalued.  Another example of a very good company that I can not see how it could meet the marekt's future expectations

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#6) On July 23, 2010 at 10:35 AM, Griffin416 (99.98) wrote:

CRM is easily the highest priced. It is a wall street favorite...for now, so it is unshortable. AMZN and LULU have forward p/e's around 30-40 depending on your view. But CRM has a forward p/e of 98.63 according to msn. with a current p/e 156.84. This is beyond riduculous.

In my experience, short with p/e's above 30 are questionable and ready for disaster is they do not crush the numbers. If you realize what triple digit p/e really means, you would make more money having it sit in a CD earning 1%

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#7) On July 23, 2010 at 10:41 AM, starbucks4ever (99.51) wrote:

XOM

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#8) On July 23, 2010 at 11:39 AM, Diagoras (92.12) wrote:

Do .OB stocks count? If so, PALG.OB

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#9) On July 23, 2010 at 11:48 AM, sikiliza (< 20) wrote:

I reckon NFLX is due for a correction soon.

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#10) On July 23, 2010 at 12:23 PM, TMFDeej (99.47) wrote:

Thanks for the submissions everyone.

Sure, Diagoras, we'll count OTC stocks...as long as they are legit companies and not the old Pump and Dump garbage that everyone on CAPS always uses to pump up their scores.

Deej 

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#11) On July 23, 2010 at 12:29 PM, TMFDeej (99.47) wrote:

Results So Far:

OPEN: 2 Votes

CRM: 2 Votes

LULU: 1 Vote

NILE: 1 Vote

XOM: 1 Vote

NFLX: 1 Vote

PALG.OB: 1 Vote

The more discussion and commentary about overpriced companies the better, but please make your one short idea clear so that we can keep a running tally.  Thanks.

Deej

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#12) On July 23, 2010 at 12:46 PM, portefeuille (99.75) wrote:

I think AMZN shares are currently pretty cheap.

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#13) On July 23, 2010 at 12:54 PM, 4everlost (30.51) wrote:

I'm going with LeapFrog Enterprises, Inc. LF

PE = 504

PCF = 15.80

PFCF = 50.70

Sales Growth Rate -17.30%

Net Profit Margin -12.30%

Return on Assets - 14.60%

Return on Investment -20.90%

52 week price change +100%

 




 

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#14) On July 23, 2010 at 1:03 PM, IBDvalueinvestin (99.59) wrote:

The discussion would have done better if you stated the most undervalued instead. Many times I find over-valued stocks  but then can't take advantage because I can't find shares to short them.

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#15) On July 23, 2010 at 1:14 PM, dcgatlanta (57.86) wrote:

Interoil (IOC) and SBUX

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#16) On July 23, 2010 at 1:17 PM, portefeuille9 (< 20) wrote:

PE = 504

for the "low P/E" fetishists.

----------------

I guess 723 is supposed to look scary. I hope people are aware of how fractions work. Say P = 1000 (that would be the S&P index in this case).

For aggregate earnings of E = (200,100,10,1,0,-1,-10,-100,-200) you get P/E = (5,10,100,1000,infty,-1000,-100,-10,-5).

So a P/E of 1000 or 10000000 or 10000000000000000000 is not much "scarier" than one of 100. The earnings E are not very different. Scare numbers would be small negative ones, like -5.

So the next time you want to scare an audience that remembers 1st grade mathematics try something like

S&P P/E OVER -7!!!

instead.

 

(if the P/E is something like -1 you might even dare the unthinkable and drop a few exclamation marks.)

----------------

 

That was my comment to this post.

S&P P/E OVER 700!!!

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#17) On July 23, 2010 at 1:37 PM, portefeuille9 (< 20) wrote:

The pre2009 split-adjusted intraday-high of the price of AMZN shares was at around $113, made on December 9, 1999. These are some numbers from those "early years of AMZN".



enlarge

(from here (pdf))

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#18) On July 23, 2010 at 1:39 PM, Bays (34.17) wrote:

AMZN has a great business model and I use them all the time, so although their multiples look extremely high, I would never in a millions years short them. I'm sure sooner or later, they will put some college bookstores out of business!

NFLX on the other hand, I see their economic moat a lot more penetrable than AMZN, and really don't see their business model succeeding in the long run.  Again, I would not put money on them failing though.

Although I could be off by 5-10 years, I'd like to think NFLX will decline as well. 

I do not short stocks, so I do not follow a lot of overpriced stocks, so sorry for not adding to the list!

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#19) On July 23, 2010 at 5:00 PM, PaxtorReborn (30.63) wrote:

UAUA

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#20) On July 23, 2010 at 5:37 PM, SockMarket (89.87) wrote:

UAUA and LCC are both pretty bad.

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#21) On July 23, 2010 at 5:42 PM, RVAspeculator (90.41) wrote:

CRM!  

I would say NFLX but it's down 20% in just the last few weeks.  CRM takes the cake.  

Of course so many people think this and that is why the stock was up another 4% today to hit another new all time high.   This always happens with these stocks.   The short interest gets really high because the stock is really overvalued, then the stock goes into a parabolic blowoff destroying the early shorts before it implodes.  

Hard to pick the tops on these momo stocks so I am waiting for CRM to roll over before I get short... 

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#22) On July 23, 2010 at 6:59 PM, Momentum21 (97.99) wrote:

My shorting success ratio is horrendous but I will cast a vote for IACI - they are going to have to get going quick. Earnings report next week and close to their 52 week high...I just don't like the brands for the long haul growth prospects. 

OPEN is a nice call as well.  

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#23) On July 23, 2010 at 7:12 PM, ragedmaximus (< 20) wrote:

how about all the 3x short etf's,just check my score. now the rumor is were headed for dow 11000 and then crashing but im leaving all my etf picks up just for spite of myself

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#24) On July 23, 2010 at 10:10 PM, walt373 (99.85) wrote:

VMW

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#25) On July 23, 2010 at 10:33 PM, abitare (99.46) wrote:

That was easy BP

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#26) On July 23, 2010 at 10:36 PM, awallejr (79.96) wrote:

XOM overvalued?  Come on Zloj.  XOM is probably one of the most shareholder friendly companies out there.

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#27) On July 23, 2010 at 10:53 PM, starbucks4ever (99.51) wrote:

3x etfs is too easy, I want something that's not 100% trivial. OK, maybe 99% trivial, like my pick.

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#28) On July 23, 2010 at 11:04 PM, rd80 (99.12) wrote:

I can't believe no one's listed Fannie Mae and Freddie Mac.  

Proper value is roughly 100% below current share prices.

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#29) On July 24, 2010 at 12:27 AM, XMFConnor (97.79) wrote:

Aren't you obligated to mention that the pitch was from Rahul Ray THROUGH SumZero... they have the rights to that content and if you quote them at all you should source them

 Wouldn't want it to get you in trouble now

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#30) On July 24, 2010 at 3:05 AM, APJ4RealHoldings (< 20) wrote:

hmmm....observing my short positions already on VRTX, ANV, PCYC, LULU, NFLX, CRM, OPEN....checking them, further panning through....if I select one of this crop and can only pick one.....

....my pick for the best short opportunity would be...

OPEN

that is my vote

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#31) On July 24, 2010 at 3:30 AM, TMFUltraLong (99.97) wrote:

Hands down Pharmacyclics (PCYC)... for 373M in market cap you get a company with no proven drugs, at 18 times book, 54 times sales and burning through 12M in cash each year.

If their drug trial fails, which I fully expect, Pharmacyclics will be a flat tire at $1.20 a share (still about 95 cents too expensive if you ask me).

UltraLong

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#32) On July 24, 2010 at 4:53 AM, CharlieBeLong (30.10) wrote:

Pax/Dan,

 I'd short LCC before UAUA.  While the industry is generally a sure bet on the short side (cumulative profits since the Wright brothers are consistently in the red), UAUA bankruptcy is rather recent.  They won't be due for another for 10 more years or so.  Their recent restructuring gives them a decent (everything is relative) cost structure.  Their merger with CO will boost their international network (Europe and Latin); International is where all the growth is. 

In fact take a look at the monthly press release each airline reports the first week of each month.  Traffic is on the upswing with strong indications of a bull market for the next couple of years.  If you are already a bull, stay away from these cyclicals.  If you're not a bull, read the last few traffic releases, and you may soon be one.  Personally, I've been bearish, but airline traffic is what's pushing me back into the bull camp.  I know these guys have moved a long way and are do for a pullback, but I suspect we'll see strong results for another two years, with another double on the stock price.

Having said that they'll both be renegotiating debt structure and labor agreements in front of a trustee within 10 years.  It's all in the timing.  Just ask bonderman, one of the worlds greatest airline traders. (buy in bankrupcty, sell at peak, repeat.)

LCC doesn't have as much to offer.  Limited international exposure they are going to miss out on the next global expansion.  LCC stands for low cost carrier, but their market position is really a big question mark.  They are in no mans land.  Finally, you can see on the monthly traffic reports that LCC is not feeling the economic growth that its competitors: UAUA,  CO, UPS, and FDX are experiencing

UAUA revenues this quarter were 5b, up 1b, or 24%.  They could easily jump another 1B giving them the highest profit in over 10 years.

 Look back, CO went from $5/shr in 02 to $41 in 07.  And went from 4/shr in 94 to 60 in 98.  We are in another cyclical bull that should last another 1 to 3 years. Let the guys ascend a little higher before you white knuckle the back side of the mountain into oblivion, or at least chapter 13 again. Again LCC will have the steepest descent to the lowest altitude.

 over and out.

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#33) On July 24, 2010 at 4:59 AM, CharlieBeLong (30.10) wrote:

bks and bgp

 earnings growth continues to beat expectations...ON THE DOWN SIDE. 

This ride will be bumpy, but until they change the way they do business, like starbucks did, they will continue to be overpriced.  And they got a lot more work to do than starbucks.

One good thing, you can usually drink a starbuck while you read their book that you never end up buying.  hmmmm

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#34) On July 24, 2010 at 5:16 AM, ragedmaximus (< 20) wrote:

ISRG,GOOG,AAPL,GMCR and FDO

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#35) On July 24, 2010 at 5:17 AM, ragedmaximus (< 20) wrote:

BPT

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#36) On July 24, 2010 at 9:20 PM, TMFDeej (99.47) wrote:

Quit crying Connor.  I'm not going to get in trouble, I did cite the author of the idea.  I'm not trying to pull one over on anyone. There's no points for originality in stock picking.  Every hedge fund in the world takes ideas from each other.  Very few ideas out there are 100% original.  I gave credit where credit was due.

I recently came across a fantastic write-up on shorting OPEN by Rahul Ray from Independence Capital Asset Partners. 

Deej 

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#37) On July 26, 2010 at 11:58 AM, walt373 (99.85) wrote:

CharlieBeLong, thanks for the info.

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#38) On July 29, 2010 at 1:56 AM, XMFConnor (97.79) wrote:

TMFDeej,

I was not crying--- simply correcting your ignorance. None of the things you just said address the fact that you quoted parts of a SumZero write-up (something they have the exclusive rights to) and did not give them credit. Crediting Rahul Ray does not change the legal obligation to cite the sole owner of that content (SumZero).

You might consider correcting your mistake rather than rudely responding and poorly representing the TMF name. It's not that hard--- "from Rahul Ray through SumZero." I am guessing that you are not a lawyer and should check your facts before telling someone from SumZero that they are incorrect in their understanding of their legal rights to content. It's not worth fussing over--- just fixing.

Foolishly,

C

 

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