Take Profits in Yelp Now, Wait for Management's Guidance

Yelp (YELP)  reports second-quarter results after the closing Tuesday. Given the stock's track record of selling off after earnings, including a 10% selloff in the first quarter, it would be a smart move to take profits now and wait for Yelp management to issue guidance.

In the past four quarters, the online consumer review site has averaged a negative earnings surprise of over 300%, according to investment firm Zack's. This measures the difference between what analysts were expecting and what Yelp actually delivered. So, given the company's track record for disappointment, why risk three-month gains of 23%?

What's more, Yelp's stock chart, courtesy of TradingView, suggests a correction could be around the corner, even if the company beats estimates.

Yelp shares, which are up 10% year to date, currently trade at around $31, outperforming the 6.8% rise in the S&P 500 (SPX) . But as you can see from the chart, YELP has skyrocketed almost 80% since the end of March, including a 20% jump from support at around $22 (green line) to $26 per share.

Why is that significant? Since that one-day spike on May 6, YELP has left all three key moving averages (20-day, 50-day and 100-day) in the dust. The stock now trades more than 21% above the 100-day (yellow line) average at $25.59. That's a key level to watch after Tuesday's results. Analysts expect a 7-cent loss on $170 million in revenue. It missed by 4 cents in the first quarter. Another miss Tuesday and/or a deceleration in revenue growth could take a 10% to 15% cut in the stock price.

In other words, with more than 100% gains in the past six months, there's too much riding on this quarter to risk on Yelp's stock. Take some gains off the table, put it towards companies that are making money, and see what Yelp says about guidance for the next quarter and fiscal year.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.