Is Groupon Enticing After Recent Headlines?

With shares of Groupon (NASDAQ:GRPN) trading around $11, 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 said Monday that it acquired online flash sales fashion retailer Ideeli to expand in the apparel sector. Groupon paid $43 million in cash for Ideeli. The deal closes Monday. Ideeli will maintain its headquarters in New York and will continue to operate as a separate website. Ideeli started in 2007 and was part of a group of so-called flash sales companies that specialized in fast, daily online events that offered heavily discounted fashion apparel in limited supply. ”Ideeli extends our fashion presence and brings great relationships with many of the top brands in apparel,” said Groupon CEO Eric Lefkofsky. “Our customers have a demonstrated appetite for these offers, and by broadening our reach in this space Groupon is even better positioned as the place you start when you want to do or buy just about anything, anytime, anywhere.”

T = Technicals on the Stock Chart Are Strong

Groupon stock has been surging higher over the past several months. However, the stock is currently pulling back and may need time to stabilize. 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

50.31%

3%

0%

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

Put IV Skew

Call IV Skew

February Options

Flat

Average

March 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 very 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 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

6.42%

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.

P = Weak 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

-5.40%

4.69%

1.06%

-3.34%

-1.74%

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

Conclusion

Groupon allows consumers and companies to find a happy medium when transacting for goods or services. The company said Monday that it acquired online flash sales fashion retailer Ideeli to expand in the apparel sector. The stock has been surging higher over the past several months, but is currently pulling back. Over the last four quarters, earnings and revenues have been increasing, leaving investors pleased. Relative to its peers and sector, Groupon has been a poor year-to-date performer. Look for Groupon to OUTPERFORM.

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