By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 4/11/11 Sign up for free Cabot Wealth Advisory e-newsletter
I was recently in Munich looking for a good restaurant close to my hotel. I turned to a company that's been making my restaurant experiences better since I joined—for free—in 2005.
It's OpenTable (OPEN), the company that allows you to make free restaurant reservations over the Internet at more than 20,000 dining establishments in the U.S. as well as in Canada, Germany, Japan, Mexico and the United Kingdom.
The company began operations in San Francisco in 1998 and has grown every year since. In the latest quarter, revenues grew 61% to $30.8 million, while earnings jumped 114% to $0.30 per share. And OpenTable has a great business model, with very little inventory. So even though it’s investing in growth, profit margins are still expanding rapidly. In the latest quarter, it hit a record 23.9%.
As to competition, it’s inconsequential. Can you say monopoly?
I first mentioned the stock here last July, when I was trading near 43. Today it’s trading at 109, which no doubt will make some readers say, “It’s come too fast! It’s too high.” Well those are typical complaints about the best growth stocks, but I’d rather own growth stocks than stocks going nowhere.
Here’s what I suggest. Wait for a decent pullback in OPEN, perhaps down toward support at 95. Or better yet, take a very reasonably priced subscription to Cabot Stock of the Month, so that you can get my advice on OpenTable—as well as many other high-potential stocks—every week. Learn more here.
Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Wealth Advisory 2/3/11 Sign up for free Cabot Wealth Advisory e-newsletter
One stock to consider is OpenTable (OPEN), the hands-down leader in online restaurant reservations. The story is pristine, as the company is by far the top dog in the industry, and it gets paid recurring monthly fees from restaurants using its system, as well as a small cut of the check of any diners that book reservations using its service. The result is rapid, accelerating growth and profit margins that are going through the roof. (Third quarter sales were up 44%, earnings were up 188% and the after-tax margin was a whopping 22.9%.)
It’s also resulted in a stock that has come a long, long way—OPEN’s advance kicked off about a year ago, as it gapped up to 30 on earnings. Now the stock is around 80, so it’s clear shares aren’t exactly early in their advance. Still, I think the stock could have another leg up soon. Here’s why.
First, the stock has formed something akin to an “ascending base;” it’s had three sharp pullbacks during the past 18 weeks, but each one found support near or just below the 50-day moving average. And, also, each successive pullback came at higher prices than the prior one … hence the ascending-look to the stock’s chart.
OpenTable is reporting earnings next Tuesday (February 8) evening, which will probably make or break the stock’s near-term future. But if you see a strong move above 84 or so, I think it’s buyable. But please note that OPEN is a wild character, so if you buy, I think it’s best to keep the position smaller than normal (whatever that means to you), and to use a stop down in the mid-70s. It’s got some risk, but a powerful breakout could bring you plenty of reward as well.
Editor’s Note: Mike Cintolo is Vice President of Investments for Cabot, as well as editor of Cabot Market Letter, a Model Portfolio-based newsletter of the best leading growth stocks in the market. Thanks to top-notch stock picking and market timing, Mike’s simple to follow and concentrated (no more than 12 stocks) portfolio has crushed the market by 14% annually since the start of 2007; he was up 24.5% in 2010. If you want to own the top leaders in every market cycle, be sure to give Cabot Market Letter a try.
Michael Cintolo
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 7/19/10 Sign up for free Cabot Wealth Advisory e-newsletter
Five stocks on my watch list broke out to new highs last week (the most bullish thing a stock can do is hit new highs) Open Table (OPEN) is one of them.
OpenTable is a California company that provides the world’s leading computerized restaurant reservation service. Started in San Francisco in 1998, OpenTable served more than 11,487 restaurants in the U.S. as of March 31, as well as hundreds more in Canada, Japan, Mexico and parts of Europe.
The service is free to diners; restaurants pay for the service. I’ve been a user for years, and I think it’s terrific.
And I’m not alone. As of March 31, the installed base of restaurants was up 20% from the year before, while the number of seated diners surged 43%. First quarter revenues were $21.3 million, while earnings were up 180% to $0.14 per share.
OpenTable is affiliated with AOL CityGuide, Chicago Tribune’s metromix.com, Citysearch.com, DiRoNa, Los Angeles Times’ calendarlive.com, NYC & Company, Time Out New York, San Francisco Chronicle’s sfgate.com, washingtonpost.com, Yahoo! and Yelp. In short, it was the first in the industry, and it’s the leader by far.
But there is competition coming, and the #1 threat appears to be Urbanspoon, whose free online restaurant guide and hip, independent attitude has helped it grab a chunk of Zagat’s restaurant guide business. Interestingly, Urbanspoon is really a division of IAC/InterActiveCorp, the Barry Diller-led conglomerate that has spun off Home Shopping Network and Ticketmaster and that currently includes Ask.com, Match.com, Vimeo and much more.
Though it can’t be verified, and it may be changing, it appears Open Table charges a $600-$700 start-up fee for each restaurant and then an average of $270 per month, plus $1 per diner seated, and 25 cents per head for reservations from the restaurant’s own website.
Urbanspoon’s new service is called RezBook. Its software is free; the only start-up cost is one iPad ($499-$829), bringing the benefit that restaurant employees aren’t tethered to a desk … and the risk that the iPad will "disappear." After that, costs are just $99 a month plus $1 for each diner seated.
Looking at dollars alone, RezBook is more attractive to restaurants … but only if diners use it. RezBook has rolled out in Seattle and L.A and is now moving into New York City. If the service gains market share, the most likely result would be price cuts by OpenTable.
But I’m not particularly worried about that, and here’s why. The stock (OPEN) is hitting new highs! This tells me that people much closer to the company than me are voting with their dollars, and they continue to like the company’s prospects.
I like the market opportunity. I like OpenTable’s leadership position. I like the profitability of the business model. And I like that fact that this is a young stock. It only came public in May of 2009, so lots of investors are still unaware of it … which means there are more potential buyers than sellers. Second quarter results will be released on August 3, and I have no doubt they’ll be excellent. Analysts are expecting $0.52 per share.
OpenTable was first recommended in Cabot Market Letter back on June 16, when it was trading at 43.
For more details, click here.
Timothy Lutts President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.