Theres nothing worse than a momentum stock. If you cant control you emotions,
and you see a stock leaping multiple points every day, soaring ever-higher,
there is a great temptation to leap in before its too late. This became
widespread in the late 90s, and Ill never forget the day Amazon (NASDAQ: AMZN )
jumped 40 bucks in a single day. I shook my head and thought it was crazy.
Little did I know that the mania had just begun. It still happens today,
although the difference is there are real businesses underlying the huge upside
moves. That doesnt mean, however, that the valuations the stock prices imply are
correct. When they are totally out of whack, its not only time to sell, but
possibly even time to short that stock. OpenTable, Inc. OpenTable, Inc. (NASDAQ:
OPEN ) offers a great restaurant reservation service that I use all the time. As
a stock, however, people mistakenly think an innovative concept deserves an
outrageous valuation. OPEN stock went public in May 2009 at around $29 per
share, went nowhere for about a year, then suddenly roared to a high of $115
earlier this year. At the time, it was pretty obvious that OpenTables trading at
90 times earnings was pretty crazy, even for a stock growing earnings at 50%
this year and 33% next year. Today, OPEN stock is down to $47 and while some
might say the bubble already has popped, I say all it did was let out some gas.
OpenTable is a quickly growing company, but one with the cash flow and balance
sheet of a small-cap company and a valuation of $1.1 billion. Im sorry, but
generating $37 million in TTM free cash flow of $19 million in profit does not
justify the still-crazy 40 P/E. OPENs bubble is going to burst. Get out.
LinkedIn If you though that market cap was unjustified, take a look at LinkedIn
(NASDAQ: LNKD ). The companys projected profit for this year is exactly two
cents per share, or a little less than $2 million. At $87 per share, the market
is not only valuing LNKD at a P/E ratio of 435, but at a market cap of really?
$7.7 billion . The only thing keeping me from shorting LNKD stock is that I cant
find shares to short, and the relatively low float of 96 million shares could
create a short squeeze. But if you are holding LinkedIn right now, ask yourself
how much bigger can the perceived market cap of this stock reach before people
wake up? Get out. Green Mountain Coffee Roasters Green Mountain Coffee Roasters
(NASDAQ: GMCR ) has created a lot of controversy over its valuation for quite
some time. This past week, a hedge fund made a presentation that all but accused
the company of accounting fraud. That took the stock down 33% from its already
lofty highs. But you guessed it I say the bubble hasnt yet burst. Analysts
seem totally convinced Green Mountain will grow earnings by 125% this year and
60% next year. GMCR already has issued accounting revisions to past results, and
the company is under an SEC inquiry at the moment. When you add all of this up,
I smell something and it isnt coffee. I also dont like that Green Mountain had
declining net tangible assets for a couple of recent quarters in fact, the net
tangible assets were more than $300 million to the negative for two quarters.
Accounts payable have been rising steadily from 2008 ($72 million) to the most
recent quarter ($331 million). GMCRs bubble is going to pop, and when it does,
you dont want to be near it. Get out. As of this writing, Lawrence Meyers did
not own a position in any of the aforementioned stocks.
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