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1 Small-Cap Stock to Buy for 2023 and Beyond

While the consistent and improving business performance and capital discipline of Yelp (YELP) are yet to be adequately reflected in its price, it presents an attractive opportunity for bargain hunters in 2023 and beyond. Read on…

With a market capitalization of $2.01 billion, Yelp Inc. (YELP) operates a platform connecting consumers with local businesses in the United States and internationally. The advertising products offered by the company caters to local businesses of various sizes and categories, including restaurants, shopping, beauty and fitness, and health, as well as home, local, auto, professional, pets, events, real estate, and financial services.

Despite the challenging macroeconomic climate, Jeremy Stoppelman, YELP co-founder and chief executive officer, sounded contrarian and bullish while announcing the company’s recent results — “The third quarter brought a number of new highs as advertisers continued to turn to Yelp for our broad-based ad platform and high-intent audience.”

The stock has gained 8.5% over the past month to close its last trading session at $29.23. It is trading marginally above its 50-day moving average of $28.63.

Let’s closely examine the factors that make it worthy of investment.

Robust Financials

For the third quarter of fiscal 2022 ended September 30, YELP’s net revenue increased 14.8% year-over-year to a record $308.89 million, driven by record revenue in its services categories and Self-serve and Multi-location sales channels.

During the same period, YELP’s adjusted EBITDA also increased 4.8% to a record $73.94 million, while the net income attributable to common stockholders came in at $9.11 million, or $0.13 per share.

Efficient Asset Utilization by Management

YELP’s trailing 12-month gross profit margin of 91.25% is significantly higher than the industry average of 50.32%. Also, the company’s trailing-12-month net income margin of 3.40% is comparable to the industry average of 4.51%.

Additionally, YELP’s trailing-12-month ROCE, ROTC, and ROTA of 5.31%, 3.83%, and 3.82% are comparable to the respective industry averages of 5.81%, 3.83%, and 2.23%.

Attractive Valuation

In terms of its forward P/E, YELP is trading at 13.63x, 19.3% lower than the industry average of 16.89x. The stock’s forward EV/EBITDA multiple of 6.36 is 25.6% lower than the industry average of 8.55.

Moreover, YELP’s forward EV/Sales multiple of 1.43 is 25.6% lower than the industry average of 1.93.

Favorable Analyst Estimates

Analysts expect YELP’s revenue for the fiscal ending December 2023 to increase 8.2% year-over-year to $1.29 billion. During the same period, its EPS is expected to increase 26.1% year-over-year to $2.70.

POWR Ratings Reflect Promising Prospects

YELP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. YELP has an A grade for Value and Quality, consistent with its low valuations and high profitability.

This has also helped YELP rank #3 of 60 stocks in the Internet industry.

Click here for additional POWR Ratings for YELP’s Growth, Sentiment, Momentum, and Stability.

Bottom Line

In a 1987 letter to Berkshire Hathaway shareholders, Warren Buffett echoed his mentor Benjamin Graham by stating that “in the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

With YELP management best placed to gauge the effect of improving fundamentals on the intrinsic value of the business and its deviation from the current market capitalization, the company’s Board of Directors authorized a $250 million increase in its stock repurchase program.

Given these factors, YELP could be an excellent investment for long-term gains.

How Does Yelp Inc. (YELP) Stack up Against Its Peers?

YELP has an overall POWR Rating of B, which equates to a Buy. Alternatively, investors could also consider looking at its B-rated industry peers: Expedia Group, Inc. (EXPE), trivago N.V. (TRVG), and Travelzoo (TZOO).


YELP shares were trading at $29.64 per share on Friday afternoon, up $0.41 (+1.40%). Year-to-date, YELP has gained 8.41%, versus a 3.53% rise in the benchmark S&P 500 index during the same period.



About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.

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