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Groupon Inc: Why GRPN Stock Is a Big Gamble That Might Just Pay Off Long-Term

Badly bruised GRPN stock is attractively priced for calculated speculation

It doesn’t take long to find the bear argument for Groupon Inc (NASDAQ:GRPN). Among volatile internet companies, GRPN stock stands out for all the wrong reasons.

Groupon Inc: Why GRPN Stock Is a Big Gamble That Might Just Pay Off Long-TermSince its initial public offering, early buyers of Groupon stock have been pummeled. In fact, GRPN has only once closed higher than its IPO price on Nov. 18, 2011 — literally ten business days after it went public.

So why on Earth would anyone want to gamble on this now?

It’s not that GRPN is a terrible company. Even critics agree that Groupon stock should benefit, as it provides a unique way for retailers to get a boost in traffic and sales. With a market capitalization just shy of $2 billion — despite horrendous losses in the markets — this ship is far from sunk.

Furthermore, the company has exciting developments in the pipeline, including the expansion of OrderUp, their food delivery service. This would go a long way in its rebranding efforts and its revenue diversification.

The issue, though, is time. Just how patient can long-term investors of GRPN stock be?

Research analysts from Wedbush hit it on the head when they recently posted a “neutral” ranking. In their estimation, management has done well in pushing ahead with a revamped strategy.

Is GRPN Stock Worth a Gamble?

At the same time, this is an organization caught in turmoil, and that will surely have an impact on Groupon stock. A majority of analysts feel the same way, with none of them offering a strong buy or strong sell recommendation for GRPN stock. Instead, they are sitting on the fence.

GRPN stock
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After a disappointing showing for the first quarter of fiscal year 2016, the lack of confidence is easy to understand. Although the earnings loss for GRPN stock came in less than expected, Wall Street was not too happy about the full-year revenue forecast, which remained the same.

Even worse, management gave a broad sales range for 2016, indicating to investors that there was still significant risk. As a result, Groupon stock tumbled double-digits after the earnings release.

Broadly weak fundamentals don’t help matters, either. Profitability has been an ongoing concern for GRPN. Near the top-end of the income statement, gross margin has fallen for five consecutive years. Annual sales growth is especially worrying, given its sharply declining trajectory.

Revenue has been downright anemic in the last five quarters, where growth has averaged less than 2%. With numbers like that, high-profile investors have simply cut their losses on GRPN stock.

Here’s the deal: For those that bought Groupon stock near historical highs, it’s unlikely that that money will be recouped any time soon.

As InvestorPlace feature writer Dan Burrows notes, GRPN could still see a sharp drop regardless of positive news, such as rising active users and a newly focused, streamlined business. But for those that are just getting tuned into the opportunity, GRPN stock has the potential to surprise.

The first clue is in historical annual returns. It’s no secret that GRPN stock has been a perennial loser in the markets, averaging 10% losses since 2011. The one year that it did do well was in 2013, when shares jumped 137%. At that time, GRPN was already up 72% by the midway point.

Consequently, this year is the only year aside from 2013 that Groupon stock is positive at the critical June 30 juncture. If history repeats itself, we could see a rally.

Groupon stock
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Another technical argument is downside volatility. It appears that bearishness has hit a bottom, which might mean the bulls are willing to re-engage GRPN stock.

The average share price in Q2 of 2014 was 32% below that of the prior quarter. In Q3 of 2015, we saw a similar drop-off, though the loss was slightly pared at -31%. A standard technical interpretation tells us that “rising bottoms” is a generally optimistic indicator.

Better yet, the actual pricing dynamics of GRPN confirm that bullish momentum may be returning.

Of course, no one is recommending that investors go all in on Groupon stock. There are many hurdles to overcome and potential recovery won’t happen overnight. That said, you have to risk money to make money.

Unlike other “cheap” trades, GRPN stock is more than a shot in the dark. Management is expending serious effort in righting the ship. More significantly, the markets seem receptive to those efforts. It’s a tough call, to be sure, but it just might pay off.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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