So my investor friends have been absolutely raving about this website Yelp (YELP) for forever, saying it was the place to go for a piece of the social media explosion. Considering how hot the social media sector is, not to mention the fact that Yelp crowdsources their content much like Facebook (FB) does (and what an investment that place is!) I was certainly intrigued.
An “Investie” Take on Yelp
I consider myself a pretty sophisticated investor, an “investie,” if you will. So I like to do my research on an investment before I give them my hard-earned cash. I pulled up their stock performance chart for the last month. I gotta say, it looked pretty tasty. 14.17 percent return? Makes your mouth water, doesn’t it?
Apparently that’s not the whole story, though. This place has been through its share of ups and downs, and the stock is apparently down 8.02 percent on the year, and more than 30 percent since March. Glad I wasn’t there for that.
Watch Out for “Investment Hipsters” AKA Short-Sellers
So Yelp has a bit of a dicey recent history. But I’m an adventurous type, not one of those General Electric (GE) investors who like companies that are as safe and predictable as a hamburger from Applebee’s. So I decided to check out Yelp, see what all the hype was.
Yelp tends to attract the type of crowd I like to call “the short-sellers.” They’re the kind of contrarian investors who love to hate on a stock just because it’s popular.
If I had to take a wild stab at it, I’d say 11.91 percent of Yelp’s total stock float came from this kind of inverse investing. That is, 11.91 percent of total business came from people who expect to profit from Yelp's failure.
Now, I’m all for short sellers. They do an invaluable service in tempering over-enthusiasm, like an army of Jonathan Golds at a Guy Fieri restaurant opening. It seems, though, that these Yelp shorters had become too numerous, and many are getting out. This causes a company’s stock to rise… but it isn’t sustainable, much like Umami Burger’s hype.
As they are less numerous than they once were, and with their absence an investment can look better than they used to – at least for a bit! It’s called the “short squeeze,” which sounds pretty cool.
The Skinny on the Site
But I guess short squeezes don’t last forever. You got alook at Yelp’s basics. And when you do that… yikes! Yelp’s forward P/E is 194, which is super gross (even for a tech company.) They also have 71 million outstanding shares, up from 66 million in January, indicating that insiders are dumping.
In fact, insider transactions are at negative 76.21 percent, indicating exactly that. And should I trust a place when even the employees don’t want to have anything to do with it? It’s not a good sign, that’s all I’m saying.
Like any play that averages 5.97 million shares a day trading hands, it’s got its supporters and detractors. It’s in a hot area of growth. But then again, growth plays are definitely on their way out. It’s got its shorter crowd, but that crowd is shrinking faster than the line for Krispy Kreme.
In summation, when it comes to Yelp, it just depends on your mood, and your appetite for risk. But whether short or long, if you like volatile tech plays, this one’s for you.
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