by Serge Berger | May 14, 2014 7:58 am
OpenTable (OPEN), a leading provider of online restaurant reservations for diners, is trading at a critical spot after a series of news headlines. OPEN stock bulls and bears alike should be on their toes.
OpenTable reported Q1 earnings after the close of trading May 1. The company beat on earnings but slightly missed on revenues, though sales for the company were up 18% on a year-over-year basis. OpenTable also upped its 2014 EPS guidance from $1.71-$1.92 to $1.81-$1.96 and narrowed its sales guidance.
OPEN stock jumped nearly 5% the following day, but despite a positive note from Bank of America analysts — which upgraded the stock from “neutral” to “buy” with an $87 price target — the gains were short-lived. OpenTable shares slipped lower again in the very next session.
Fast-forward to yesterday, when social networking and local review website Yelp (YELP) announced that restaurants will be able to use Yelp’s online booking system for free, which puts it in direct competition with OpenTable.
Yelp itself has seen some flaws in its business practices, particularly as it relates to the posting of negative user reviews of local businesses listed on the website. But Yelp does have good inroads with many local businesses and restaurants, so offering an online booking service might lower its barrier of entry into this business. On the other hand, OpenTable is well established and integrated with many restaurants.
Either way, OPEN stock didn’t like the news on Tuesday as investors sold it with both hands, resulting in an ugly 7% selloff.
From a multiyear perspective, OPEN stock flashed its first warning signs in mid-March when it again found resistance just below its November 2013 highs, which coincided with a 61.8% Fibonacci retracement of the entire 2011 selloff. Then, in early April when shares snapped their late 2012 uptrend (black line) and the 200-day moving average (red line), OPEN stock quickly began trading more heavily.
On the daily time frames, Tuesday’s selling in OPEN stock brought it right back to a thinning layer of support, all within a narrowing trading range of recent weeks.
For my part, it’s not worth it to play hero on OPEN stock if you’re a bull, nor to go for the killshot if you’re a bear.
However, bears might get a chance if OpenTable manages to fall below the $62-$62.50 area, which could quickly move the stock into the mid-$50s. The bulls, on the other hand, would need OPEN stock to overcome Tuesday’s weakness and close back above the $70 mark before seeing better risk/reward again.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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