Is Groupon a Discount at Current Prices?

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 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 businesses with new opportunities.

Groupon shares are trading up slightly as CEO Eric Lefkofsky says that the company is looking to buy at least three warehouses to support its direct e-commerce sales and fulfillment efforts. A Kentucky facility has already been singled out for acquisition while e-commerce sales have been ramping up. Though sales are increasing, Groupon’s margins have been sagging — Lefkofsky says that the warehouse purchases will help to expand them.

T = Technicals on the Stock Chart Are Strong

Groupon stock has struggled to gain traction since its initial public offering. However, the stock has been surging higher this 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 above its rising key averages which signal neutral to bullish 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

59.72%

43%

41%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 significant 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-125.00%

50.00%

0.73%

100.00%

Revenue Growth (Y-O-Y)

7.11%

7.53%

29.69%

32.17%

Earnings Reaction

21.55%

11.44%

-24.24%

-29.59%

Groupon has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about 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

115.40%

56.05%

21.52%

46.15%

39.73%

Groupon 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 is reportedly looking into purchasing warehouses in order to expand its e-commerce business. The stock is currently surging higher after struggling a bit since its initial public offering. Over the last four quarters, earnings and revenues have been rising, however, investors in the company have had mixed feelings about recent earnings reports. Relative to its peers and sector, Groupon has been a year-to-date performance leader. 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.