Is Groupon’s Stock Attractive At $21?

by Trefis Team
-91.41%
Downside
48.83
Market
4.20
Trefis
GRPN
Groupon
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We believe there may be better places for your money than Groupon’s stock (NASDAQ: GRPN) after it has climbed 70% off the March bottom. Groupon’s stock has rallied from $12 to $21 off the recent bottom compared to the S&P which moved 55%. The primary reason for the high recovery was the Fed’s multi-billion dollar stimulus package announced on March 23rd which lifted market sentiments. The stock saw a further recovery post Q2 2020 results as the revenue and earnings beat market estimates.

The company has seen a fall in revenue over recent years, while its P/S multiple has also dropped. We believe the stock is likely to see negligible upside after the recent rally and the potential weakness from a recession driven by the Covid outbreak. Our dashboard What Factors Drove -79% Change in Groupon Stock between 2017 and now? has the underlying numbers.

Some of the fall over the last two years is justified by the roughly 22% fall seen in Groupon’s revenues from 2017 to 2019, which in turn led to a -23% fall in revenue per share (RPS) during this period as the number of shares outstanding saw an increase of 1%. Further, its Net Income has fallen from $14 Bil in 2017 to $-22 Bil in 2019.

Groupon’s P/S multiple changed from 1x in 2017 to 0.6x in 2019. The company’s P/S is now 0.3x as the pandemic has adversely affected the industry.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to the stay-at-home orders there is reduced discretionary spending which has adversely affected consumption as consumers focus on essentials. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. This could be seen in Groupon’s Q2 2020 results as revenue fell to $395 million, down by 26% y-o-y. Meanwhile earnings were recorded at $-2.53 for Q2 2020 compared to $-1.42 in the same period of the previous year.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.  

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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