Is Groupon Poised to Head Higher?

With shares of Groupon (NASDAQ:GRPN) trading around $8, is GRPN an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Groupon offers online retail services. The company provides daily deals on stuff to do, eat, see, and buy in more than 500 markets in 44 countries. It provides an online service that lets groups of people create campaigns to pool resources, including money and personal commitments, to take action, and it allows users to sell products and transact business online. Groupon is poised to see rising traffic, as it provides consumers with ways to save on common shopping experiences and activities.

Groupon is smart. When it needed to push its new search “pull” marketing approach, it partnered with a company it knew its customers desperately wanted to deals for. Enter: Whole Foods Market (NYSE:WFM). Spoiler alert: It worked. According to Re/code, earlier this week, Groupon sold a $5 deal for a $10 digital gift card to Whole Foods under one condition. Deal seekers had to type “Whole Foods” into the search bar atop Groupon.com to be eligible to purchase the gift card. More than 100,000 consumers bought the deal as Groupon users remembered how to employ the search function, and both Whole Foods and Groupon scored. Mission accomplished. Groupon’s latest initiative was prompted by the company’s need to more smoothly transition to its search-driven “pull” marketing approach, per Re/code.

T = Technicals on the Stock Chart Are Mixed

Groupon stock has struggled to make significant progress over the past several months. The stock is currently trending higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Groupon is trading below its rising key averages, which signals neutral to bearish price action in the near-term.

GRPN

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Groupon options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Groupon options

63.7%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

As of Friday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Groupon’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Groupon look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-1.54%

0%

-125%

50%

Revenue Growth (Y-O-Y)

20.39%

4.66%

7.11%

7.53%

Earnings Reaction

-21.88%

6.42%

21.55%

11.44%

Groupon has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Groupon’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Groupon stock done relative to its peers – Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), and United Online (NASDAQ:UNTD) — and sector?

Groupon

Facebook

Google

United Online

Sector

Year-to-Date Return

-28.4%

25.93%

8.83%

-18.4%

-2.01%

Groupon has been a poor relative performer, year-to-date.

Conclusion

Groupon allows consumers and companies to find a happy medium when transacting for goods or services. The company sold a $5 deal for a $10 digital gift card to Whole Foods under one condition, deal seekers had to type “Whole Foods” into the search bar atop Groupon.com to be eligible to purchase the gift card. The stock has struggled to make significant progress over the last several months, but is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been increasing, leaving investors pleased. Relative to its peers and sector, Groupon has been a poor year-to-date performer. WAIT AND SEE what Groupon does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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