September has been a stellar month for the market so far. Historically the weakest stock market month on the calendar, the month has produced a positive return of around 4% on the back of QE3. However, we are about to go through the first quarter since 2009 that is likely to have negative Q/Q earnings growth in the S&P. I have taken some profits in my portfolio. I am also looking to slowly increase my short positions in the coming months as I think 2013 is likely to have an ugly start for a myriad of reasons. (Fiscal cliff, Europe, election results, anemic job growth, etc…) On top of my list of possible short positions is Yelp (NYSE:YELP).
"Yelp, Inc. operates Yelp.com, an online urban city guide that helps people find places to eat, shop, drink, relax, and play based on the informed opinions of a community of locals in the know." (Business description from Yahoo Finance)
8 reasons YELP is overvalued at $27 a share:
- The Barron's cover this week was on Facebook (NASDAQ:FB) and the article stated the company was still overvalued by 30%. I think this will be a wet blanket around the rest of the social media universe in the next week or so, including Yelp.
- Insiders sold more than $15mm worth of shares in the latest filing period.
- The stock is selling for more than 500 times forward earnings.
- The company's business model does not have same type of moat around it as does LinkedIn (NYSE:LNKD), which is selling at less than 100 times forward earnings.
- Now that the IPO period has long passed, analysts are no longer touting the stock. Cantor Fitzgerald recently put a "hold" on the stock. Street speak for "sell". Oppenheimer put a "perform" on YELP in April.
- Consensus estimates for both FY2012 and FY2013 have come down over the past three months. The company is expected to lose 33 cents a share in FY2012 and about breakeven in FY2013.
- The company has negative operating cash flow still and sells at over 15 times revenues.
- The stock is selling at levels it has failed at several times over the past year (See Chart).
Disclosure: I am short LNKD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: May also initiate a short position in YELP in next 72 hours