This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Priceline-OpenTable deal may signal froth in internet services shares

By Chris Lau for Kapitall.

When Facebook (FB) bought WhatsApp, worries grew for investors that the market was approaching a peak. The market dipped a bit in the weeks that followed, but continued its ascent. Last week, Priceline (PCLN) offered to buy OpenTable (OPEN) for $2.6 billion. This triggered a rally in Internet services shares. Not only should investors be wary of the rally, greater caution for speculative plays is warranted.

Priceline will buy OpenTable for $2.6 billion in an all-cash deal. This is a 46% premium, and will cost 46 times forward earnings. The current P/E is now at 111 times forward earnings. Priceline shares are up over 100% in the last 3 years, compared to OpenTable, whose shares were flat if we factor out the takeover offer:

Priceline probably could have developed a business that was similar to that of OpenTable. Instead, it chose to use its extra cash to buy development.

Markets irrationally boosted shares of Yelp (YELP) and Groupon (GRPN) as a result of this news. Investors should view neither company as a takeover target. Groupon trades at a price / free cash flow of 37 times. Yelp’s ratio is an astonishing 910 times. 

Valuations don’t matter…yet

For now, valuations are being ignored by the mergers and acquisition department of large companies. This does not mean investors should do the same. Though cash is easily accessible, that may change in the near future. Rational investors still need to approach highly valued companies with caution.

Do you think these charts signal rough seas ahead for adventurous investors? Use the links below to start your own research.

Click on the interactive chart to view data over time. 

 

1. Facebook, Inc. (FB, Earnings, Analysts, Financials): Market cap at $173.98B, most recent closing price at $70.78.

 

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,078.36 -1.21 -0.01%
S&P 500 2,001.32 +4.58 0.23%
NASDAQ 4,574.4670 +16.7720 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs