Where Will Groupon Go Next?

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 unveiled a self-service feature that could let thousands of additional merchants work with the online deals provider every month, said Dan Roarty, the company’s vice president of product development. Known as Deal Builder, the tool will offer templates and step-by-step directions so merchants can create product and service offers without help, Roarty said in an interview. Previously, Groupon’s sales force worked with sellers — usually in person or via phone — to create offers. The feature could attract smaller vendors and sellers in more categories, such as photographers, Roarty said.

At the end of the third-quarter, Chicago-based Groupon averaged more than 65,000 active deals in North America, and more than 500,000 merchants have been featured in its online marketplace. “Before, we ended up with a lot of merchants that’d call in, and we wouldn’t necessarily have someone available right then and there,” Roarty said. “What we’ve launched now is a way for merchants who want to take action very quickly to do self service. It’s really designed to increase the number of merchants, in a lot of locations where perhaps we wouldn’t deploy our outbound sales force.”

T = Technicals on the Stock Chart Are Strong

Groupon stock has struggled to make significant progress over the past several months. The stock is currently surging higher and looks set 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 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

81.76%

86%

83%

What does this mean? This means that investors or traders are buying a very significant 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

Flat

Average

April 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 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 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 = Average 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

-6.25%

17.04%

4.92%

-27.90%

-2.04%

Groupon has been an average performer, year-to-date.

Conclusion

Groupon allows consumers and companies to find a happy medium when transacting for goods or services. The company unveiled a self-service feature that could let thousands of additional merchants work with the online deals provider every month. The stock has struggled to make significant progress over the last several months, but is currently surging higher. Over the last four quarters, earnings and revenues have been increasing, leaving investors pleased. Relative to its peers and sector, Groupon has been an average year-to-date performer. Look for Groupon to OUTPERFORM.

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