OpenTable Shows Danger of Chasing Growth Stocks

Investors always seem to want more

   

During the current market rout, investors have found several safe havens, such as gold and U.S. Treasuries. That strategy has certainly paid off.

But there is another category that seems a little more dicey: growth stocks. Just look at the shares of OpenTable (NASDAQ:OPEN), which are off 10% to $62 in Wednesday’s trading. In fact, the shares are down from a high of $118 (by the way, the company’s shares are still trading at a lofty price-to-earnings ratio of 96).

Back in May, I warned about several issues with OpenTable, which is a provider of online reservations for restaurants. I was concerned that there was a slowdown in the momentum, which appeared to be more than a temporary thing. The company’s talented CEO, Jeffrey Jordan, departed so as to find opportunities in Silicon Valley (he’s now venture capitalist at Andreessen Horowitz).

In its latest quarterly report, OpenTable posted revenue of $34.3 million, up 53% — that seems pretty good. But growth investors always want more and more. And simply put, OpenTable didn’t deliver. The Wall Street consensus was for $35.3 million in revenue.

This is certainly a cautionary tale for investors chasing growth. No doubt, highfliers like Chipotle Mexican Grill (NYSE:CMG) and Green Mountain Coffee Roasters (NASDAQ:GMCR) have proven to be solid investments. Yet it is extremely tough to meet expectations. And with the economy slowing – and inflation remaining a problem – it is probably a good idea to be more cautious.

Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

 


Article printed from InvestorPlace Media, http://investorplace.com/2011/08/opentable-shows-danger-of-chasing-growth-stocks/.

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