OpenTable - Make Your Reservation Now
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
OpenTable (NASDAQ: OPEN) is a company that many people are actively betting against. There are multiple days worth of shares being shorted meaning people are selling the stock hoping to buy it back at a lower price. Here's the thing, I think they are wrong. Mr. Market is in a what have you done for me lately mood and I think the shorts are looking at a picture of OpenTable from several months ago.
In the middle of last year OpenTable was a high flying stock selling around $90 a share. Based on projected earnings at the time that gave it a PEG of over 2, which we have learned is one of the hints that a stock is overvalued. The company beat earnings, but missed on revenues and it's hasn't been pretty since. The stock is down about 60% from it's high. Add to that Google buying Zagat and everyone thinks that OpenTable is going away like a canceled reservation. Here's the truth:
Current Price: $47.30
P/E based on '12 full year earnings: 31.96
Growth expected: 28.10%
So not what you would call cheap based on a PEG for '12 of about 1.14, but not ridiculously expensive like it was. Let me be clear, for all that OpenTable has done it hasn't done one thing yet - missed earnings estimates. Now it has missed revenue expectations, but it hasn't missed earnings estimates. In fact 3 of the last 4 quarters it beat estimates by 50%, 21.70%, and 22% respectively. In the most recent quarter it met estimates and the market reacted as though the company was going out of business. So what's the real story of OpenTable? Here are some facts:
- OpenTable has seen healthy growth in restaurants, reservations, and diners seated every earnings report.
- OpenTable has over 200% growth internationally
- OpenTable's main business is handling reservations and seating for restaurants
Did you catch that last one? I'll say it again for good measure - OpenTable's main business is handing reservations and seating for restaurants. Despite what people think, the deal Google made for Zagat isn't in OpenTable's field. Zagat is and likely will be a ratings company for restaurants. Zagat does help people with reservations - through guess who? - OpenTable. In addition there isn't another company in the reservations and seating business in the U.S. that has the breadth of restaurants that OpenTable does. While I've read someone from another website (that shall remain nameless) talk about how the industry could do this or do that the fact is OpenTable continues to sign up more and more restaurants, and seat more and more diners.
So why would I suggest considering buying this company that is heavily shorted and isn't selling for a discount to it's growth rate? Well, this is one where I think analysts have the growth rate wrong. Here is a company that has grown earnings by 123% on average in the past 5 years and they are calling for 28.10% growth in the next 5 years? I understand a slowdown, but a 77% slowdown? Keep in mind this company including the most recent earnings meet, has been beating estimates by about 23% each quarter. Assume any kind of "normal" economic recovery and OpenTable benefits from that as well. Given good growth in the U.S. and over 200% growth internationally I would consider making your reservation now.
Motley Fool newsletter services recommend OpenTable. The Motley Fool has the following options: long APR 2012 $30.00 puts on OpenTable. MHenage owns shares of OpenTable. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.