Clearly revenue is on the right track, and free cash flow and super-sized margins create impressive opportunity. The opportunity doesn't come without a price though. The forward looking earnings multiple is over a 100, and I consider anything more than 20 a red flag that requires considerable caution. After adjusting for the growth rate -- and I can't find a reason why the market has it wrong in its expectation that growth will continue -- the P/E ratio becomes reasonable for a long-term investor.
Investors looking for an entry should wait until a late Thursday or Friday drop for the lowest risk possible. Otherwise options are always an option. Option premium usually declines immediately following an earnings release, but as a result of the decline in shares, volatility will remain relatively high for at least a day or two. Instead of buying shares outright, investors can go long Zillow by selling $70 strike price September put options for $2.60. The risk is lower than buying the shares outright, and you can profit even if the stock doesn't move up right away. The other upside to selling puts is the downside has strong support from the short-sellers that will want to get out if they can. About 45% of the float is shorted, and after the strong move higher, many will be happy to get out near even. Short-covering helps keep the shares from falling, but it doesn't necessarily push them higher. This makes selling either covered calls or cash-covered puts (same thing from a risk/profit profile), superior in my opinion versus a nonhedged long position. At the time of publication, Weinstein had no positions in stocks mentioned. Follow @RobertWeinstein This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.