OpenTable Overbought; Investors Sell Short
NEW YORK (
) --
OpenTable
(OPEN)
has garnered a wealth of investor attention since its initial public offering in May of last year. The online restaurant-reservation service's stock has soared more than 230% since then, and its profits have surged to $3.8 billion in its recently reported quarterly results.
Back in September,
TheStreet
reported that
OpenTable was among a group of stocks considered overbought and potentially ripe for a sell .
|
>>18 Overbought Stocks to Sell Now
A stock is generally considered overbought when high demand unjustifiably pushes its price higher than its underlying fundamentals support. It may also mean the stock's price has risen so much, and usually on high volume, that an oscillator's upper boundary has been reached. That usually indicates the equity's price is overvalued and due for a pullback.
Our list of overbought stocks screened for equities with a price-earnings ratio greater than 50 and a weighted alpha greater than 100. High P/Es indicate that good news about a company has already been baked into its stock price; weighted alpha, a rear-looking indicator, demonstrates how much outperformance has already occurred.
At the time, OpenTable's P/E was 145.82, and its weighted alpha was 137.2. Screened again on Thursday, the stock's P/E fell to 120.65; its weighted alpha pushed up to 148.20. (
Barchart
, the stock screening tool used for this report, weights the weighted alpha metric, assigning more weight to recent activity and less to earlier activity.)
Market watchers apparently took note and are now shorting OpenTable's stock at record levels, according to reports.
Investors sold short 15% of OpenTable's outstanding shares, the most since the stock began trading publicly and more than double its average level, according to a
Bloomberg
report sourcing research firm Data Explorers.
"We would argue that the stock price could be 50% lower," Harry Rady, CEO of
Rady Asset Management
, told the news outlet. "The stock is ahead of itself and is priced for perfection."
Rady Asset Management runs a long-short fund and is betting against OpenTable.
"OpenTable is a pure valuation trade for us," Rady said. "The stock is too expensive, even using the most optimistic assumptions, which therefore makes it vulnerable."
T2 Partners' Whitney Tilson told
Bloomberg
that OpenTable is "one of the most overvalued stocks we've ever seen," adding that "it's a well-run company, but it's stretching for growth and the earnings report was misinterpreted as a spectacular report, when it was only OK."
OpenTable booked a 324% year-over-year jump in profits for the third quarter; revenue rose 44% to $24.5 million. Results topped expectations, sending the service's stock price up nearly 11% in a single trading session to close above $68 per share.
On Thursday OpenTable shares were essentially flat, trading just under $66 per share.
-- Written by Miriam Marcus Reimer in New York.
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