Zillow Inc (Z): This Highflier Could Soon Come Crashing Back to Earth

What are investors paying for $20 million in EBITDA? Well, Zillow has an enterprise value of $2.2 billion. That’s an EV/EBITDA of more than 100!

Of course, investors are looking ahead: Zillow is expected to generate $50 million in EBITDA next year and $65 million in EBITDA by 2015. Still, this company is valued at 34 times projected 2015 EBITDA, on an enterprise value basis. That’s twice the 2015 multiple sported by firms such as HomeAway (NASDAQ: AWAY) and Move Inc. (NASDAQ: MOVE).

Fair value for this stock, reflecting still solid growth rates in coming years, is closer to 22 times projected 2015 EBITDA, or around $45 a share. That’s 32% below current levels.

Rising marketing costs, decelerating top-line growth, disappointing launches for new product lines and staggering valuations make this stock highly vulnerable to any whiff of bad news when Q2 results are announced. Even if Zillow manages to deliver exceptional results, it’s hard to see how this nosebleed stock can move any higher. That means Zillow Inc (NASDAQ:Z)’s risk is much greater than the potential reward, which sets the stage for an opportunity to buck the tide and short this stock.

Recommended Trade Setup:

— Sell Z short at $60 or above
— Set stop-loss at $70
— Set initial price target at $45 for a potential 25% gain in six weeks

$1,000 Per Month Trading System

You could collect $1,000 or more per month without buying a single stock. Click here to learn how…

.