Travelzoo's Sell-Off Shows Why Others Are Good Shorts

Includes: CMG, CRM, MSFT, TZOO
by: Hedgephone

Travelzoo's (NASDAQ:TZOO) earnings miss shows that revenue growth without earnings growth is just meaningless -- who cares about the top line if it can't improve the bottom line? While I respect the "new media" and web 2.0 world and am myself developing websites in my spare time, I can't see how investors in the stocks could ever make any money going forward. Sure, if you bought LinkedIn (LNKD) the first day in the first three seconds of trading, you could have made money, but most people are going to lose money in the stock even though the business is a fantastic idea. The problem with the web bubble 2.0 is simple: LNKD's website gets around 15% of the traffic of (YHOO), yet the company is valued at 50% of Yahoo's valuation, and YHOO is a mature business with scale, content, and earnings.

I like LNKD, Facebook, and I completely respect Google (NASDAQ:GOOG) but I don't like the stocks that trade for 100X or even 50X earnings here because there are so many better alternatives trading for 8-10X earnings.

Chipotle (NYSE:CMG) missed earnings, is growing same store sales at 9% (which will slow eventually), and should only grow earnings by around 15% per year on a best case basis over the next five years. Even in the most optimistic scenario, the business should trade for 30X earnings. Right now the shares fetch almost double that valuation at 55X earnings. CMG looks like a great short sale opportunity at current levels. It is virtually impossible for the company to catch up to its valuation, but make sure you set a tight stop loss order in the name because bubbles don't always pop right away.

LinkedIn has made my fund some money this year on the short side, as I set tight stops and move them down as I make profits on my shorts. That said, the stock is right back to $101 from $66 and offers shorts another opportunity to go on the offensive here. I prefer selling the $100 November calls against the name and would consider buying the $130 calls for a bear call spread. That said, I think this short is a layup, but I would not look to short the common because of the high short interest borrowing rate.

Salesforce (NYSE:CRM) could not hold the new all-time highs and dipped back below resistance at $153. If CRM pulls any type of Riverbed (NASDAQ:RVBD) miss, the stock will be mauled in similar fashion and for that reason I am invested in the August $160 puts while short the August $145 puts for a spread trade. TZOO shows us that even the highest beta momentum name can be slaughtered on an earnings miss.

Disclosure: I am short CRM, LNKD, CMG, TZOO.