Bull of the Day: Yelp (YELP) - Bull of the Day
October 22 2013 - 3:19AM
Zacks
Yelp (YELP) has been getting a series of good reviews from
Wall Street. Those good reviews come in the form os higher earnings
estimates and that has helped make the stock the Bull of the Day as
a Zacks Rank #1 (Strong Buy).
Steady Increases In Revenue
One critical factor in a stock beating earnings is to have
strong topline growth. YELP has been able to produce consistent
beats on top and that has translated into a recent beat on the
bottom line as well.
The last three quarters saw the company hit positive revenue
surprises of 2.2%, 3.4% and 3.2% respectively. The most recent
quarter also saw a bottom line surprise of 75% as the company came
in three cents ahead of the Zacks Consensus Estimate.
Company Description
Yelp operates an online urban city guide that helps people find
places to eat, shop, drink, relax, and play based on the informed
opinions of a community of locals in the know. It offers
information relating to restaurants, shopping, food, nightlife,
arts and entertainment. The company serves customers in the United
States, Canada, the United Kingdom, Ireland, France, Germany,
Austria, the Netherlands, Spain, Italy, Switzerland, Finland, and
Belgium. Yelp was founded in 2004 and is headquartered in San
Francisco, California.
Earnings History
Of the last five reports, the company has posted two earnings
beats, two misses and reported in line one time. That isn't exactly
a stellar record, but as the company moves towards profitability,
investors would be wise to take a deeper look at the stock.
While they are in quite different industries, Telsa (TSLA) saw
its stock jolt higher as it reached its expected first quarter of
profitability. The move higher in the automaker was also assisted
by a very large short position in the stock. YELP has seen the
number of shares sold short increase from 4.7M at the end of June
to 6.6M at the end of July and 7.5M at the end of September. So
there is potential for a very large short squeeze should the
company reach profitability sooner than expected.
The Next Earnings Report
The company is expected to report earnings on October 29 after
the market closes. The Zacks Consensus Estimate is calling for $59M
in revenue and a loss of a penny per share. Given that the last
quarter was expected to see a loss of four cents a share and the
company reported a loss of only one cent a share, this could very
well be the quarter that helps push shares higher.
Each of the last two quarterly reports helped the stock move
higher. The March 2013 report was a miss on the bottom line of two
cents, but the beat on top was more to Wall Street's liking. The
stock moved higher by 23.8% in the session following the report.
Similarly, the June 2013 quarter saw a move of 23.2% after beating
on both the top and bottom lines.
Earnings Estimates Moving Higher
In May the Zacks Consensus Estimate for 2013 was calling for a
loss of $0.14 per share. That number ticked higher to a loss of
$0.13 per share in July and then to loss of $0.10 per share where
the consensus resides today.
Over the same time period the earnings estimates for 2014 have
increased from a gain of $0.19 in May to a gain of $0.23 where the
consensus sits right now.
Valuation
The more common metric investors lean on (PE) is not relevant
for YELP as the company still has negative trailing and forward
earnings. That will change soon as the calendar year 2014 is
expected to be profitable. Price to book and price to sales metrics
are more relevant, but they show some inflated numbers as investors
still struggle to properly value the company that has negative
earnings and tremendous growth. Speaking of growth, this should be
the focus of most valuation arguments. The company is expected grow
revenues 46% in 2014 compared to 7.3% for the industry average.
Earnings growth is even better, with 332% growth in 2014 vs. the
14% industry average.
The Chart
A quick look at the chart shows a stock that is moving higher in
a rapid fashion. With earnings right around the corner and
potential profitability there to push the stock higher, there could
be a massive short squeeze. Average daily volume of 3.4M shares
means that there is a little over two days volume of stock that is
sold short. Of course earnings days tend to get more liquid than
most, but don't be surprised if a sizeable amount of short covering
pushes this stock higher into the earnings report.
![](http://static.zacks.com/images/zacks/blogs/1382375647_scaled_%20425.jpg)
Brian Bolan is a Stock Strategist for Zacks.com. He is the
Editor in charge of the Zacks Home Run Investor service, a Buy and
Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading
service that focuses on small cap stocks and also carries a risk
limiting strategy. Subscribers get daily emails along with buy, and
sell alerts.
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