Is Groupon On the Road to Recovery?

With shares of Groupon (NASDAQ:GRPN) trading around $7, 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 the 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. Look for Groupon to continue to grow and provide consumers and business with new opportunities.

T = Technicals on the Stock Chart are Strong

Groupon stock has seen a consistent decline since its initial public offering just last year. The stock has made a strong bullish run this year on positive earnings news. 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 above its rising key averages which signal neutral to bullish price action in the near-term.

GRPN

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(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

72.88%

13%

10%

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

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

50%

0.73%

-100%

-111.43%

Revenue Growth (Y-O-Y)

7.53%

29.69%

32.17%

44.77%

Earnings Reaction

11.44%

-24.24%

-29.59%

-27.01%

Groupon has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have not been pleased with Groupon’s recent earnings announcements.

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

Facebook

Google

United Online

Sector

Year-to-Date Return

46.91%

0.51%

28.07%

10.91%

15.96%

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

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Conclusion

Groupon provides consumers and businesses with new ways of interacting through its retail services. The stock is seeing a strong bounce after a long several months of increased selling pressure. Earnings and revenue figures have been increasing for most of the last four quarters. However, investors priced in higher expectations for the company. Relative to its peers and sector, Groupon has led, in year-to-date performance, by a wide margin. Look for Groupon to OUTPERFORM.

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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