Yelp (YELP) Stock Rallies on Ratings Hike, Analysts Like 'Strong Brand'

Yelp (YELP) shares are jumping on Friday after analysts at RBC Capital Markets upgraded the company to 'outperform' from 'sector perform' and lifted their price target to $42 from $34.
By U-Jin Lee ,

NEW YORK (TheStreet) -- Yelp (YELP) - Get Report  shares are jumping 2.51% to $26.55 on Friday after analysts at RBC Capital Markets upgraded the company to "outperform" from "sector perform" and lifted their price target to $42 from $34. 

Despite slight deceleration in local ad revenue growth rates, "we still view Yelp as a top-of-funnel, strong-brand unique asset with downstream transaction capability," analysts said.

The firm added that it sees unique core and strategic value in the company noting that its new price target implies a 62% upside.

Yelp is a strong brand that connects small businesses to consumers, analysts said.

Separately, TheStreet Ratings team rates YELP INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

We rate YELP INC (YELP) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 15.1%. Since the same quarter one year prior, revenues rose by 40.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • YELP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 7.55, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for YELP INC is currently very high, coming in at 84.80%. Regardless of YELP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YELP's net profit margin of -5.62% significantly underperformed when compared to the industry average.
  • Net operating cash flow has decreased to $9.86 million or 48.23% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 56.55%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 320.00% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, YELP is still more expensive than most of the other companies in its industry.
  • You can view the full analysis from the report here: YELP
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