Is Groupon’s Stock Suffering From Growing Pains or Is It A Sell?

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$1.20 billion in cash and no long-term debt. Stocks with this kind of balance sheet that are trading lower than expectations make prime acquisition targets. That doesn’t mean it’s going to happen. It simply means it’s a possibility. Remember that Google was interested for $6 billion only two years ago.  

T = Technicals on the Stock Chart Are Weak

Groupon has underperformed the S&P 500 since its IPO.

Over the past month, Groupon is down 2.01% while the S&P 500 is down .15%. Year-to-date, Groupon is down 78.77% while the S&P 500 is up 14.43%. Over the past calendar year, Groupon is down 72.64% while the S&P 500 is up 20.94%.

At $4.54, Groupon is trading slightly higher than its 50-day SMA of $4.38. It’s trading $.72 lower than its 100-day SMA of $5.26. And it’s trading more than 50% lower lower than its 200-day SMA of $9.54.  

E = Earnings Are Poor, But Revenue Is Impressive   

What stands out most about Groupon is its annual revenue growth. This is a key selling point for longs.  

2008

2009

2010

2011

2012

Revenue ($)in millions

.005

14.54

312.94

1.61B

N/A

Diluted EPS ($)

-.01

-.02

-1.33

-1.03

N/A

 

Quarterly revenue has also been good, but earnings aren’t as impressive.  

     9/2011      12/2011      3/2012      6/2012      9/2012
Revenue ($)in millions

430.16

492.16

559.28

568.34

568.55

Diluted EPS ($)

-.18

-.02

-.02

.04

.00

 

T = Trends Do Not Support the Industry

Daily deals seem to be fading. It’s possible for the concept to succeed in the long run, but Groupon’s main competitor, Living Social, recently laid off 400 employees. This isn’t a good sign for the industry. Companies like Groupon and Living Social need to figure out ways to make their businesses more profitable.

Conclusion

The vast majority of analysts have a Hold recommendation on this stock. That’s because anyone who studies the story knows there is tremendous upside risk as well as tremendous downside. With so many factors pulling Groupon’s potential in opposite directions, Groupon is a WAIT AND SEE.

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