Cast your vote for the World's Most Overpriced Stock
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.