New Trade: Long Apple ($AAPL) & Short Yelp Inc ($YELP)

By: ispeculatornew
Date posted: 07.14.2014 (3:00 am) | Write a Comment  (0 Comments)

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Last week I was able to close out 3 different stock picks, all winning ones which I was obviously thrilled with. The year-to-date performance (before fees) of this portfolio is now +23,81% which is very solid. I do intend on keeping the streak going but the next few weeks will be very interesting as most of the stocks I follow will report earnings. Google, Yahoo and eBay are among those reporting next week!!

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Today is a bit of a different type of trade as I match up one of the lower P/E stocks that I follow with one of the highest ones. That means they have very different levels of growth of course which has to be taken into consideration but also look carefully at these numbers and how much more you’re getting out of Apple (revenues and earnings per share) compared to Yelp. At this rate of growth, it will take a very very long time for Yelp to play catch up….

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
AAPLApple Inc95.2215.913.6719.959.24.2319.920.926.3941.2353.24
YELPYelp Inc70.62N/A80.032.8469.364.396.992.023.55N/AN/A

AAPL Revenue (Quarterly YoY Growth) Chart

AAPL Revenue (Quarterly YoY Growth) data by YCharts

$AAPLLong Apple (AAPL)

Today I was asked by a friend what my top stock pick was these days. A few months ago he had suggested I look at Gazprom which has done extremely well since the start of the Russian crisis. I still think it’s a solid pick but it was even better then. I liked the pick, it was original, controversial and it worked. That being said, as much as I would have liked to pull one of those off, I went with Apple. Despite its very solid performance this year, Apple remains a great upside vs downside play and I can’t think of many better plays at the moment. Apple trades at a discount to the S&P500 in terms of P/E ratio which I can’t justify.

ycharts_chart (3)

Next earnings release: July 24th 2014

$yelpShort Yelp Inc. (YELP)

Over the years, I’ve been at best neutral about Yelp. There were the rumours of shady tactics towards advertisers,  a reliance on players like Google for traffic. Of course, with many big players such as Google (GOOG), Facebook (FB), TripAdvisor (TRIP) and Priceline (PCLN) (through its OpenTable acquisition) making very strong moves to better compete with Yelp, it’ll be a big challenge for the company to justify its sky-high valuation.  Depending on Google’s search engine for much of its traffic is not surprisingly a big challenge given how they now compete. Just look at this Techcrunch article about leaked documents and you’ll get an idea. The same is likely happening on other platforms. Yelp has little to no control in those platforms.

When you think about the fact that Apple’s price/share is 35% higher than Yelp’s but its revenues/share are almost 650% higher, you can see why I think Yelp will have an extremely tough time justifying its 80 forward P/E.

ycharts_chart (4)


Next earnings release: July 31st 2014

Disclaimer: Long Facebook (FB), Apple (AAPL)

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