Stock Short of the Week: The Knot, Inc (KNOT)

Shares of The Knot (KNOT) are currently trading just above $31 per share. Even with our enormous enthusiasm for the web and online advertising (we still like CNET, YHOO and TFSM), we believe KNOT is overvalued at current levels. Yes, we love the fact that it is a pure-play, niche content site (like CNET and even more like iVillage which was one of our all-time favorites). Sure, it will continue to grow its topline and bottom line significantly – double-digit rates. But, a very quick, back-of-the-envelope analysis shows that The Knot is currently trading at nearly 20x a highly optimistic forecast for 2008 EBITDA (assuming an $850 million eneterprise value, 40% revenue growth in 2007, 33% in 2008 and then 35% EBITDA margins).

We would recommend purchasing the April ‘07 $25 puts (BQCPE.X) – currently trading at $1.20 as a way to play this current overvaluation (a true naked short is too risky for our liking). If nothing else, this can provide a bit of a hedge against your long positions in YHOO, CNET and TFSM (buy the way, we also recently picked up shares of GOOG at $475 and like it up to $550.

We do very much like the company and its business model.  We’d be buyers of the stock if fell back to the low $20s range.