According to a 13G filed with the SEC, billionaire Steve Cohen’s SAC Capital Advisors owns 1.1 million shares of OpenTable Inc (NASDAQ:OPEN), giving the hedge fund 5% of the total shares outstanding. SAC had previously crossed the 5% threshold last fall, before selling some shares during Q4 and ending 2012 with about 940,000 shares in its portfolio according to its 13F filing (see more stocks SAC owned).
OpenTable Inc (NASDAQ:OPEN) is still a growth company by any measurement, but its growth rates have been slowing as the restaurant reservations service has already achieved considerable market penetration. Revenue was up by 16% last year compared to 2011, and with margins shrinking earnings only grew 11%. These numbers aren’t necessarily bad on their own- the issue is that OpenTable Inc (NASDAQ:OPEN)’s current valuation is quite high (the trailing earnings multiple is 54) and so the company needs to deliver high growth for several years in order to justify the current valuation.
We track quarterly 13F filings from hedge funds and other notable investors as part of our work developing investing strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). This database can also be used to find other managers who liked OpenTable Inc (NASDAQ:OPEN) as of their most recent filings from the beginning of this year. We see Chris Hansen’s Valiant Capital with 1.1 million shares at that time, unchanged from the end of September (find Hansen’s favorite stocks) while Cantillon Capital Management initiated a position of 1.1 million shares during the fourth quarter of 2012 (check out Cantillon’s stock picks).
We’d consider Yelp Inc (NYSE:YELP) and Groupon Inc (NASDAQ:GRPN), sources of marketing for local businesses including restaurants, to be OpenTable’s closest peers. Yelp Inc (NYSE:YELP) and Groupon are also somewhat popular short targets, as neither company is profitable on a trailing basis. Revenue has been growing at each company- up 65% in the fourth quarter of 2012 versus a year earlier at Yelp, and 30% at Groupon- and the sell-side is expecting both to be at least somewhat profitable in 2014. However, the P/E multiples are higher than we would like at both companies and so we don’t think that these stocks are good values either right now.
From our perspective, Yelp Inc (NYSE:YELP), Groupon Inc (NASDAQ:GRPN), and OpenTable Inc (NASDAQ:OPEN) are all too expensive at their current prices to be worth buying. Investing in one of these companies is speculating either on the business achieving high earnings growth for a period of several years- high enough to beat analyst expectations, in most cases- or that a cash-rich peer would choose to make an acquisition. There is some chance of a deal, and so potential short sellers should be careful, but large tech companies have had large cash hoards for several quarters and yet there have not been any solid developments. We therefore don’t see what SAC is going for here and would advise against following him into OpenTable.
Disclosure: I own no shares of any stocks mentioned in this article.
