Can Groupon Continue to Outperform Post-Earnings?

With shares of Groupon (NASDAQ:GRPN) trading around $10, 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 has continued to rise after reporting third-quarter earnings that beat expectations after the bell on Thursday. Up 2.7 percent in premarket trading, the company reported that sales rose 4.7 percent to $595.1 million. Groupon posted a net loss of $2.58 million, much less than analyst expectations of $14.3 million, according to analysts surveyed by Bloomberg. Groupon also announced that it’s purchasing South Korean travel deals company Ticket Monster Inc. for $260 million.

T = Technicals on the Stock Chart are Strong

Groupon stock has witnessed sharp moves since its initial public offering in 2011. The stock has been surging higher this year and is currently trading slightly below highs for the year. 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 between its rising key averages which signal neutral 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

58.99%

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

December Options

Average

Average

January Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral 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 Increasing 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

0.00%

-125.00%

50.00%

0.73%

Revenue Growth (Y-O-Y)

4.66%

7.11%

7.53%

29.69%

Earnings Reaction

8.26%*

21.55%

11.44%

-24.24%

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

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

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

Groupon Inc.

Facebook

Google

United Onlinne

Sector

Year-to-Date Return

111.30%

79.64%

43.90%

142.40%

95.31%

Groupon Inc. has been a relative performance leader, year-to-date.

Conclusion

Groupon allows consumers and companies to find a happy medium when transacting for goods or services. The company continues to rise after reporting third quarter earnings that beat expectations. The stock is currently trading slightly below yearly highs and looks poised to continue. Over the last four quarters, earnings and revenues have been increasing, leaving investors pleased. Relative to its peers and sector, Groupon has been a year-to-date performance leader. Look for Groupon to OUTPERFORM.

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