I’m kicking myself for not following my instincts and shorting Yelp (YELP) before it announced utterly rancid earnings last Thursday. For years, the only thing that has mystified me more than Yelp’s business model has been its enduring popularity with Wall Street. As I type, I’m looking at a pile of recent analyst reports with absurd price targets for the company. I like to save these kinds of laughably optimistic reports. It’s a hobby of mine. I’ve still got a glowing buy recommendation for Enron dated only days before the energy behemoth imploded.
For all my doubts about Yelp and other social media stocks, there’s a good reason I have not shorted any of them up to now. It’s just too risky to bet against companies in the midst of a secular mania–and make no mistake, that is exactly what has lifted Yelp, Twitter, LinkedIn and their ilk to stupidly large valuations that they will almost certainly never live up to.
This past week’s sell-off might signal the beginning of the end to several recent manias, especially in the biotech, social media, and cloud computing sectors. But, to my amazement, one mania seems to be going strong. As just about every stock in the markets got eaten for lunch on Friday, a new restaurant company called Zoe’s Kitchen debuted—and jumped 65 percent.
I know a fair amount about the restaurant business, both the good and bad of it. I am lucky enough to own a restaurant that’s doing quite well (knock wood). A few years back, I owned another restaurant that didn’t do well. Like most eateries, it failed in less than three years. As a money manager, I’ve been studying the industry and investing in restaurant companies for thirty years, and I’ve never seen anything like this “fast casual” craze.