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Is Yelp Inc. (NYSE:YELP) Potentially Undervalued?

Yelp Inc. (NYSE:YELP), which is in the interactive media and services business, and is based in United States, saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Yelp’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Yelp

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What is Yelp worth?

Good news, investors! Yelp is still a bargain right now. According to my valuation, the intrinsic value for the stock is $47.14, but it is currently trading at US$35.37 on the share market, meaning that there is still an opportunity to buy now. Yelp’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Yelp look like?

NYSE:YELP Future Profit January 23rd 19
NYSE:YELP Future Profit January 23rd 19

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Yelp, at least in the near future.

What this means for you:

Are you a shareholder? Although YELP is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to YELP, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on YELP for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Yelp. You can find everything you need to know about Yelp in the latest infographic research report. If you are no longer interested in Yelp, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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