Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

The debacle in Facebook (NASDAQ:FB) over the past week should have easily been foreseen given that the IPO pricing was giving a $100B valuation on a company with less than $5B in revenues. Unfortunately, this sort of hype is somewhat rampant in sectors of the tech space. Facebook in a lot of ways reminds me of a couple of companies I continually short after long rallies through option strategies, in that they share common characteristics with Facebook. They are Salesforce (NYSE:CRM) and Amazon (NASDAQ:AMZN). Among traits all three companies share are the following:

  • The stock is very connected to their "superstar" CEO, which I always find to be a red flag. Quick, name the CEO of high-flyers Chipotle (NYSE:CMG) or Intuitive Surgical (NASDAQ:ISRG). I can't either, although most investors know Mark Zuckerberg, Jeff Bezos and Marc Benioff.
  • All of these stocks have huge price to cash flow ratios.
  • None of these managements put maximizing shareholder value on the top of their core priorities.
  • Insiders seem happy to be cashing out on a regular basis of their shares.

4 reasons Amazon is overvalued at $215 a share:

  • Earnings per share in FY2008: $1.48 a share. Earnings per share in FY2011: $1.37 a share.
  • For that negative earnings growth, you get to pay over 86 times forward earnings, above its five year average (59.1).
  • The stock has one of the largest five year projected PEG ratios (5.99) of any large cap growth equity I have seen.
  • The stock is priced at 32 times operating cash flow (and cash flow declined from FY2010 to FY2011) and over 13 times book value.

3 reasons CRM is a short at $148 a share:

  • Operating cash flow per share in FY2010: $.97 a share. Operating cash flow per share in FY2012: $.96 a share.
  • Insiders have sold $10's of millions worth of shares in the last few months, which is status quo for this company.
  • The stock sells for 70 times forward earnings (non-GAAP), 11 times book value and has a five year projected PEG of over 3 (3.27).
Source: Amazon And Salesforce: All Hat And No Cattle