Price matters to me, and it should to you too. There are many great companies out there with stocks that have performed beautifully to the point of being too expensive to buy. That is the case with this stock and I would wait for a significant pullback before buying. That being said, I love the company and love the business model, but the stock is too rich for me right now. The company in question is called Opentable Inc. (OPEN).
Great Business Model
According to Yahoo! Finance, the company provides restaurant reservation solutions in the United States, Canada, Mexico, Europe, and Asia. It offers solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. It has a very scalable business model which is conducive to excellent profitability as more customers come aboard.
The stock has been a ridiculously good performer over the past year, almost tripling since the end of 2009. Obviously the secret of this company is out in the investment community judging by the price action. The company has posted an average positive surprise of 139% over its past four earnings reports. That is the kind of performance one would expect to see with such a young company and a high flying stock.
The company will report earnings on February 8 and analysts are looking for 16 cents per share. Going by its history, anything short of 25 cents will cause a big selloff in my opinion. That is the problem with these types of stocks. There is so much built into the price that it keeps needing to exceed a high bar just to maintain the share price.
Opentable’s financials are in great shape and management is doing a great job. It is solidly profitable and sports a solid operating margin of 19%. It’s ROE is a strong 15%, with no debt. It is also generating free cash flow, which is an important metric.
Needs A Pullback
I think this company will be a winner long term, but I am not willing to pay 90x expected 2011 earnings for the stock in addition to 20x sales and 18x book value. History shows us that winning stocks are perpetually expensive, but that doesn’t mean that they are worth buying at any price. If the stock were to correct to the $60 area with no deterioration in fundamentals, I would be a buyer at that level, but not now.
A Great Stock That’s Just Too Expensive For Me is an article from: 
