January 3, 2011

Open Table (OPEN)

Open Table is interesting:
  • The growth rate is declining - 106% for Dec 2010 vs 54.4% for Dec 2011. But c'mon man, it was growing over 100%! Tough to hold that against it.
  • Not expensive at all at current price of $70.65 - yes, it's trading at 103.9 times the 2010 EPS estimate, but that's 106% growth, so it's still trading at slightly under 1 times the 2010 growth rate.
  • Open Table only needs to trade at 1.07 times 2010 growth to give a 10% upside from here - still cheap. If it could trade 1.25 times growth, we're looking at a near 19% upside.
As I'm looking for opportunities as far away from double the growth rate as possible, this fits. Some other things I'm considering before jumping in:
  • 2010 earnings report on Feb 7th - not that far away and I typically like to stay out (or be out) of trades when the report hits.
  • Since 2010 earnings is so close, the 2011 earnings outlook may be more relevant - to get the same 10% upside referenced above, OPEN needs to trade at 1.36 times 2011 growth. Yes, that still looks cheap, but still higher than the 1.07 above.
  • Also want to analyze a couple other high-growth stocks, Netflix and Priceline.
Definite maybe to go long on OPEN - I'll keep you updated.

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