Groupon Inc (NASDAQ:GRPN) is soaring Monday morning, with GRPN stock up by high single digits in premarket trading. The most obvious culprit: An upgrade to Groupon stock by Piper Jaffray to “overweight” with a $6 target, up from “neutral” and a $4 target for the volatile investment.
If the gains from Groupon’s early rally stick, shares will be sitting on a roughly 20% gain year-to-date. And more importantly, if the price target from Piper Jaffray is in the ballpark, then GRPN stock has another 60% left to run.
Of course, that’s a big “if” for investors in the daily deals company.
GRPN stock is approaching yet another high-stakes earnings reports in just over a week on July 27. And based on previous Groupon earnings results, it’s very likely that we’ll see a big move in this stock after the latest numbers.
There’s no question there will be fireworks. But if you’re an investor in Groupon, it remains unclear whether this leg up will stick.
GRPN Stock Fights Against History
If you want reasons to bet against Groupon earnings results or GRPN stock performance, you have plenty of history on your side.
From an accounting scandal early on into its life as a public company to a nearly nonstop crash in shares over its first two years that resulted in a roughly 90% decline since its IPO, the flaws in GRPN stock are well-known by any who have watched the market over the past few years.
But the good news is that Groupon doesn’t appear to be a fad company. Its daily deals segment still is doing a brisk business, and GRPN has branched into direct marketing and e-commerce. Meanwhile, Groupon has high hopes for a food delivery service after acquiring startup OrderUp last year.
Investors aren’t exactly eager to give GRPN stock the benefit of the doubt, however.
It’s not just the previous stock slump or the accounting problems from yesteryear. Most serious analysts admit the management team has done a decent job stabilizing the company, and with almost $700 million in cash and a mere $50 million in debt under a roughly $2 billion market cap, the company certainly isn’t in any financial trouble anytime soon.
However, that’s not enough — particularly as we approach another crucial earnings report.
Disappointing Q1 results in April quickly shaved about 20% off GRPN stock in just a few trading days after a ho-hum showing and guidance that didn’t satisfy the Street. Sure, just a few months prior we saw a big breakout after strong Q4 results … but Q3 Groupon earnings in November were characterized by another 20% crash.
So while the stock upgrade is nice, you have to have a ton of confidence in Piper Jaffray to believe the pendulum is going to swing the right way on GRPN stock this time around.
Traders love the volatility, as well as continued chatter of a merger deal with Yelp Inc (NYSE:YELP) or an acquisition from a bigger tech company like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) continues to attract investors who think they could make big gains in short order.
But you can’t ignore the downside risks as GRPN stock stares down another very important earnings date in about a week.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the stocks mentioned here.
