After 85% Gain, It's Finally Time to Cover Yelp Shorts
It has been almost two years since I recommended investors to short Yelp (YELP). Back then, Yelp was trading close to $92. In the reference time period, Yelp’s share price has fallen about 85% as the stock is currently trading just a little over $17.5.
I have recommended shorting Yelp multiple times in the past and all my short recommendations have been successful. However, after the 85% drop, I think it is time for investors to book profits and cover their short position.
Yelp’s recent quarterly results show that Yelp is finally making progress and isn’t bleeding money. Yelp reported earnings per share of $0.11, beating the analysts’ estimates by $0.14. On the revenue front, Yelp’s top-line grew almost 40% year over year to $153.7 million, $1.3 million ahead of the consensus target.
Despite the better-than-expected results, Yelp’s shares plunged considerably following the earnings release. The company’s heavy expenditure weighed in on its EBITDA and as a result, the stock plunged to under $15.
Although the stock has recovered marginally since then, I think now would be the ideal time for investors to close their short positions as Yelp’s shares may be near a bottom.
Acquisition is finally likely
I have been advising investors to not buy Yelp on the hopes on an acquisition for quite some time now. The primary reason why I thought Yelp wasn’t an acquisition candidate was the company’s overvaluation.
After the post-earnings plunge, I think companies like InterActiveCorp (IAC) may finally be considering buying Yelp. Given that InterActiveCorp has failed with its acquisition bid for Yelp’s rival Angie’s List (ANGI), I think the chances of it trying to acquire Yelp are finally looking better.
After the washout, Yelp’s market cap currently stands at $1.33 billion and it finally looks cheap enough for InterActiveCorp to buy it out. Although that doesn’t mean Yelp’s shares won’t move lower in the near future. Given the bearish market sentiment, it is highly possible that Yelp’s shares plunge another 10%-20% before it finally receives an acquisition bid.
Yelp’s shares are down roughly 85% since I recommended shorting the stock back in the first quarter of 2014. Given the downfall, I think it is finally time for investors to cover their short positions. I think Yelp’s shares may be near a bottom and the company can prove to be a potential acquisition candidate. For this reason, I think investors should cover their positions and avoid the stock for the time being.