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Greenberg: ‘Time to Get Short’ OpenTable?

Big news: OpenTable announced today that it has seated its 200 millionth diner.

There’s no argument about the company’s execution and performance.

But Brad Safalow of PAA Research—no stranger to this column’s readers for his early bearish call on for-profit education—believes it’s time for investors to distinguish between the stock and the company’s true potential as a business.

In a 39-page report today, he says it’s “time to get short” OpenTable , taking a swipe at the very reason many people own it: The so-called “total addressable market.”

“The company’s management team has done a marvelous job of positioning shares of OPEN as a total addressable market story, or TAM,” he says. “Investors seem to focus almost entirely on OPEN management’s definition of TAM and where the company’s penetration rate stands in that theoretical market opportunity.”

Among the reasons he’s dubious:

While OPEN’s product has become widely used, it’s a solution without a problem that will ultimately lead to discounting.

A survey of 125 to 150 independent restaurants nationwide showed that most have little intention to purchase an OpenTable license in the near future.

“Depending on where you sit that can be perceived as bullish or bearish,” Safalow writes, adding: “The majority of restaurants we surveyed view the cost of their ERB and booking fees as overly expensive and would consider switching for a less expensive option. Simply stated, restaurants would welcome more competition.”

It would be foolhardy to ignore competition from UrbanSpoon and others. “OPEN has significant advantages over its competitors at this point, most notably its installed base and consumer awareness, but they are not as insurmountable as some investors would have you believe.”

Safalow’s bottom line: OpenTable’s shares, which trade at around $85, could trade as low as $55 or 39- to 40-times his 2012 estimates.

My take: All of the rational arguments in the world often don’t matter with high-momentum stocks until it’s proven, via a sharp deceleration in results, that the momentum isn’t warranted. That often blindsides investors, who simply want to believe, especially if it’s a product they use and love—and companies that have executed well.

It is, after all, human nature. That's why, when I first raised a few red flags over OpenTable a few months ago, I said on air that I make a living stepping in front of speeding locomotives. I was right, and have the track marks to prove it.

Why do it? I believe part of my job is to keep investors apprised of the other side of the story, no matter how incremental, and then let them figure it out for themselves. Sometimes they wish they had, other times I wished I hadn't! All in a day's work.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Follow Herb on Twitter: @herbgreenberg

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