Simply stated, Groupon Inc (NASDAQ:GRPN) is schizophrenic. Pull up a GRPN stock chart over the last two years, and you can see exactly what I’m talking about. The company desperately wants to move forward in the highly competitive e-commerce market. However, investors have no way of knowing if “this time, it’s different.”
Currently, GRPN stock looks as if it has shaken off its volatile past.
Since the close of June 12, shares have gained more than 80%. On a year-to-date basis, the company is up an impressive 6%. But the most important consideration here is time.
Since the beginning of 2016, rallies have been exceedingly sharp, but quick. As soon as Groupon stock peaked, prices fell off a cliff. This present rally has lasted more than half-a-year. So, is the curse broken?
I don’t want to be the bearer of bad news, but most investors should probably walk away from GRPN stock. Even speculators who scoff at risk should also walk away.
I’ve been on both sides of this trade. In July 2016, I suggested that GRPN shares could pop higher due to favorable technical conditions. A little more than a month later, Groupon stock was up 80%. However, I was also correct in pointing out that it was a risky trade. Several months later, we were back at square one.
In February 2017, I wrote a scathing article, declaring Groupon a “paper tiger.” Now, this trade badly got away from me … for a while. Within a few months, GRPN stock was back in the doldrums.
As far as I’m concerned, Groupon should change its logo to a see-saw, because that’s all that it is. Worse yet, the see-saw has reached its zenith, and it’s only down from here.
GRPN Too Risky for Investors and Speculators
Sometimes, we get caught up in the trap that professional market analysts don’t know what they’re talking about. On an individual basis, that very well could be true. But as a consensus, it’s usually better to go with the majority opinion.
GRPN stock lacks compelling reasons to go contrarian, and analyst consensus confirms it. The majority of covering analysts rate GRPN as a “hold.” An equal amount of analysts are on the “buy” and “sell” sides. Speculators have a glimmer of hope in that recently, one analyst ranks the company a “strong buy.” Still, I wouldn’t chase this outlier opinion.
For starters, most investors don’t like to see their investments ping-pong chaotically. But for Groupon stock, this chaos is easily explained. The company’s sales growth is extremely pedestrian, and on top of that, it consistently loses money. So while it has an okay balance sheet highlighted by relatively little debt, it hasn’t demonstrated much forward progress.
Furthermore, Groupon faces serious competition. While the firm has a fairly distinct business model, in the era of Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), and Facebook Inc (NASDAQ:FB), you need a standout brand. To be frank, Groupon is still an afterthought against these giants.
As a speculator, I don’t know what you see in GRPN stock. Since mid-February of 2016, shares have bounced between $3 at the low and $6 at the high. At the current price of just under $5.50, you’re cutting it close to the edge of the established trading range.
Your best hope, then, is to assume that strong fundamentals drive Groupon stock towards double-digits. But how likely do you think this event will occur?
Groupon Stock Probably Peaked in 2013
If you’re up 80% on GRPN stock, congratulations! If I were you, I’d collect the profits and run to my next venture.
I say this because Groupon stock probably peaked in 2013. Fundamentally, it makes perfect sense. In terms of active customer growth, the company began its journey to the summit around the end of 2013, and beginning of 2014.
But by 2015, it became abundantly clear that Groupon was having trouble retaining its customers; hence, that year’s dramatic slide. Moreover, during the past three years, active customer figures have largely flatlined. This explains the bulls and bears gambling on the organization’s ultimate trajectory.
At this point, I just don’t want to play this game anymore. I see no encouraging signs of a confident, steady recovery. On the other hand, speculating on GRPN is a raw deal. I’ve been right temporarily on the upswing, and I’ve been right temporarily on the downswing. Further tempting fate seems like a bad idea.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
