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ChrisGraley (29.80)

What am I missing?

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May 04, 2011 – Comments (16) | RELATED TICKERS: OPEN

As open table takes a nosedive, I'm getting reminded by another stock trend that I was right about, but picked way too early. 

Since the crash of 08 I've be early before, but never as early before about maybe 50 plus companies that seem to want haunt me since 08.

Believe me, I understand government influence. I understand propping up the economy. I know about the plunge protection team.

I know that the Bernank wants to throw enough money on the ground to make it seem like it's raining money and us Americans just have to show up to get rich.

So even taking all that into account, what am I missing? Why is Crox trading at 27 times earnings? Why is Pier 1 not in bankruptcy?  

Why is Dollar Thrifty trading at about 8 times what it's worth?

I've stayed away from banks and home builders, I know that the government will prop them. 

When a company like opentable has a market cap of 2.5 billion dollars though, that just slaps you in face before it calls you stupid. You are making online restaurant reservations! Open table could get every restaurant in the world and not be a $ 2.5 bil company. Even if they did, they have no moat! I can start a company tomorrow than can take online restaurant reservations without any overhead. What are people investing in?

 

 

 

 

 

 

16 Comments – Post Your Own

#1) On May 04, 2011 at 7:40 PM, TheDumbMoney (38.68) wrote:

It looks like Open Table may finally be taking its deserved fall.  That said, it's forward P/E is less than half its trailing P/E, because of its super high growth rate.  Its PEG Ratio is only 1.3.  That's much lower than AT&T's PEG Ratio, and that of many other companies.  And it has 14,000 restaurants signed up in the U.S., and only 7,000 or so internationally, so there is that future growth potential.  There are also significant netoworking effects, plus it gets fees not just from reservations but from subscriptions.  I think you underestimate the moat, albeit temporary moat, of a first mover.  IMO, Restaurants don't want to be dealing with five such companies; they will stick with one that is working (the first mover) and say no to many of the rest.

I have occasionally shorted stocks, though I am currently shorting none.  I don't own OpenTable stock either.  Munger had a great quote within the last year that he and Buffet created a list of 100 companies in the 1999-2000 era that were going to zero, but they never shorted any because you can't cover your short if the stock goes to zero or gets delisted (though he said it more pithily).  That said, I have come to the conclusion one should only short a stock that is a total bust; i.e., one shouldn't ever short a stock with a very excellent business model and lots of growth just because it has a high P/E.  I will call this the "Whitney Tilson Principle," in honor of his famous Netflix short, now covered at a huge loss.  InfoSpace in the dotcom era was a good short; OpenTable, maybe not.  I would say this principle stays in effect until the P/E hits 300 or so or the PEG Ratio hits 4 or so, at which point any stock is fair game for a short.  But with a PEG ratio of 1.3, OpenTable is not my idea of a rip-roaring short that is going to make you serious green.  But what do I know.  Just my two cents.

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#2) On May 04, 2011 at 7:46 PM, TheDumbMoney (38.68) wrote:

Also, I know you're one of the gold guys, but don't discount what the Fed is doing entirely.  Whatever you may think of the Fed, its actions mean that marginal companies are refinancing bad old debt with low, low interest long term debt, at fixed rates.  This may end up being bad for those bondholders, but it can't be anything but good for those companies.  Impacts a lot of the marginal companies that may be doing better than you suspect.  Look at how they have re-vamped their debt in the last two or so years.  If anyone is disadvantaged right now, it's the companies that don't have debt, and that didn't.

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#3) On May 04, 2011 at 9:06 PM, checklist34 (99.70) wrote:

the moat is a huge headstart I suppose...  but that noted, I think I can relate to your frustration.  HIG, one of my biggest holdings, sits at 0.6 book and about 6x normalized earnings, while everything and its mother trades at 50-100x. 

it frustrates, and fascinates, me at times. 

open is one of the stocks on my WTF is going on list also.

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#4) On May 04, 2011 at 10:16 PM, ChrisGraley (29.80) wrote:

dumberthanafool, that's an excellent response.

 I've seen the same momentum that you are talking about in the first post but I can't explain it. Yes, I've seen momentum like this before, but not with so many fundamentally flawed companies at the same time and not with the same duration.

In your second response, it's ok to call me a gold bug (although you should call me a silver bug because the only gold I own is jewelry) Unlike most gold/silver bugs though, I don't think that I discount the low interest money that most companies have access to right now. Debt is still debt though, and I can't see riding a a growth company that's flawed even if that debt is free of interest. A company still has to demonstrate that it will stand on it's own 2 feet.

Even in the dot com era when it was pretty easy to understand that if a company will pay $6 shipping to sell a $5 bag of dogfood, it was clear that it won't last no matter what it's growth rate is. We saw lunacy, but we never saw the lunacy that we see now. Right now we are commited to rubber shoes, Lazy boys for the unemployed, housing builders that don't build houses, a rare earth company that won't mine anything for years and  coffee companies that have a business model of charging as much as they can for the smallest portion of coffee that they can sell.

None of these business models are sustainable and none of these companies would survive in real life. We aren't in real life mode right now. Yes, the government is making it easier for them by offering low interest money, but they are also offering low interest money to companies with much better fundamentals. 

Checklist, I'm just like you. I'm both frustrated and amazed.

It seems like all the companies that were doing the wrong thing get rewarded because the numbers look so much better and all the companies that did the right thing don't have that improvement in numbers to show.

It might take another year or two for me to make money, but I'm still not investing in rubber shoes or overpriced coffee. 

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#5) On May 05, 2011 at 9:18 AM, TheLastYetti21 (30.30) wrote:

1+. Great post, I agree with your sentiments. These high valuation momentum names will come crashing down, this story always ends badly. It can be very frustrated though that researching and buying good companies at a fair price has not been near as profitable as just buying a high flier such as CRM, OPEN, GMCR, etc. I believe this is largely do to big money manipulation, but when they fall they will fall hard i.e. OPEN yesterday. Valuations are really laughable for some companies.

I find the best way to play these is put options a few months out.

Full disclosure: I am short CRM via put options

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#6) On May 05, 2011 at 2:26 PM, amassafortune (29.48) wrote:

It is weird out there, but it's been weird for a few years now.

Spain is an event that could spark a reality check. The IMF and EU have stated they can handle the debt issues of Ireland, Greece,  and Portugal. (And why not, at 9%-13% interest rates for recent debt placements.)  Spain is the one that tips the scales, even with the Fed semi-secretly doing some long distance extending and pretending. At some point, Spain will declare it has no need for intervention, the Euro will erode significantly over the next couple weeks, the dollar will spike, and the market will seek out the most honest balance sheets.

Another wild card is repatriation of offshore profits by U.S. multi-nationals, reportedly in excess of $1 trillion. This corporate bonus was last given under Bush II at a generous tax rate as low as 5.25%. This is tough to do while oil profits are huge, but if the dollar begins to lose its lower base, this is an action that could stop a dollar flush with "real" money without taking on more debt. The downside is that it would really p/o trading partners, in effect, redistributing retained earnings at the international level.    

It is weird. If the death of Bin Laden can knock 40 points off the S&P that earthquakes, tsunamis, and nuclear meltdowns could not, the reality trigger will most certainly be a surprise.   

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#7) On May 06, 2011 at 12:37 PM, dragonLZ (99.44) wrote:

I wish I was so smart as dumberthanafool...

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#8) On May 06, 2011 at 12:39 PM, dragonLZ (99.44) wrote:

Correction:

I wish I were so smart as dumberthanafool...

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#9) On May 06, 2011 at 1:35 PM, TheDumbMoney (38.68) wrote:

Chris, don't get me wrong, I'll be the first to tell you I'm frustrated by the nonsense.  Whatever we may think of Microsoft and its revenue/Windows issues, it's a strange world when a stock like that trades at a sub-10 forward P/E after just posting 31% yoy quarterly earnings growth, while a hundred marginal companies with no moat to begin with, and with equal or lesser growth rates, trade at P/Es over 20.

I'll focus on this quote of yours:  "Debt is still debt though".  Yes and no though, right?  If they are retiring old, higher interest debt, and replacing it with new, lower interest fixed rate debt, then debt is not still debt.  That new debt costs them less money, which has a real impact.  That's the point I'm trying to make.  And that impact will persist long after QE2 ends.  Not only that, but if in fact there is significant inflation, that impact will be even more pronounced (because most of it's fixed rate debt)!  The origin of their low-interest debt may be artifical, but it will have a continuing real-world impact that will not simply go away.  Magic!

In my view though, you're right, we're not in real life mode now.  But to me that does not mean everything is fake either, as the above example I hope shows.  If real economic life is heaven, and total artificiality is hell, then we're in purgatory in my view.  Yes, there are major artificial aspects to Fed actions.  But there are also real world impacts that are real, not artificial (as well as artificial impacts).  Aspects of the "E" in market P/E are real, and aspects of the "E" in market P/E are artificial.  And it's impossible to determine how much is what.  That's one of the things that makes this time period so difficult and frustrating.

Of course, this is all just one non-expert dude's opinon.

dragonLZ, iz you mocking me again?  I iz not happy about that.

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#10) On May 06, 2011 at 3:30 PM, dragonLZ (99.44) wrote:

dumberthanafool, did I ever mock you before?

I honestly think you are a very smart dude, dude. I've got no reason to mock you (other than your incredibly low CAPS score :) )

So far, I liked 99.9% of your posts and comments that I read. The answer you gave to Chris was top notch too.

I really wish I were as smart as you are. There are not many people here on CAPS who are as smart as you (although many think they are).

And for what is worth, I also wish I were as smart as Chris.

Good Luck Guys.

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#11) On May 06, 2011 at 4:52 PM, TheDumbMoney (38.68) wrote:

Dude, if I were that smart I'd HAVE a higher CAPS score!!  :-)

Now hold on while I go send some Nigerian Prince guy who emailed me some money; he's going to make me rich, rich, rich.

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#12) On May 06, 2011 at 5:08 PM, mtf00l (45.11) wrote:

Three words,...

"High Frequency Trading"

This is done by computer.  It follows instructions.

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#13) On May 06, 2011 at 11:04 PM, ChrisGraley (29.80) wrote:

I don't know dragon, you understand the whole momentum thing.

You can look at a chart and see an elephant with a tiara on and know that  you can invest in Enron for the next 3 weeks. 

You's is a smart dude in your own right. 

 

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#14) On May 07, 2011 at 12:47 AM, dragonLZ (99.44) wrote:

Chris, when I said "I wish I were smart as you guys" I had general smartness in mind, not just investing-smartness.

p.s.

For the hundredth time, I don't think I'm a momentum investor (even though I do probably understand a little bit about elephants and tiaras). I just lost 2,000 CAPS points (in a couple of weeks or so) because I refuse to sell stocks I think are big long term winners.  

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#15) On May 07, 2011 at 2:18 AM, portefeuille7 (96.08) wrote:

I just lost 2,000 CAPS points (in a couple of weeks or so)

so has may garbage player (your old benchmark, hehe ...).


your new benchmark has done slightly better ...

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#16) On May 07, 2011 at 2:21 AM, portefeuille (99.60) wrote:

so has may

as has my

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