Shares of Groupon (NASDAQ:GRPN) were hammered on Wednesday after the company missed earnings estimates. Though batters, GRPN stock closed well off its lows and except for a slight further dip on Thursday, it continued to hold up as the week ended.
That’s got some investors wondering if the earnings-related selloff was an overreaction and if GRPN is actually a buying opportunity at almost 37% off its 52-week high.
Non-GAAP earnings of 10 cents per share missed estimates of 13 cents a share, while GAAP earnings of 8 cents per share missed estimates by 2 pennies. Revenue of roughly $800 million did beat analyst estimates by ~$16.5 million, but fell 8.4% year-over-year (YoY).
Gross margins fell short of expectations and full-year EBITDA guidance of $270 million came up short of the ~$301 million consensus. All said, it’s no wonder Groupon stock took a beating after the report. Earnings missed, revenue decreased YoY (although that was expected) while guidance disappointed.
The only silver lining is that GRPN stock didn’t close dead on the lows.
Sizing Up Groupon Stock
Overall, though, there are some positives. For instance, Groupon has a surprisingly large amount of cash, with more than $840 million in the bank. Further, while the company just came up short on the bottom line, it’s at least encouraging that GRPN stock is profitable.
The company earned 18 cents per share in fiscal 2018, which was up more than 63% from the prior year. That said, estimates for 2019 only call for earnings of 25 cents per share — and those estimates will surely come under pressure after these latest results and guidance. Revenue growth is expected to be about flat in fiscal 2019, but it’s at least better than the ~7% revenue decline in 2018.
So what do we have with all of this? Frankly, it’s hard to be super bullish on Groupon at this point. On the plus side though, revenue growth is improving, as is the deal-offers site’s profitability. Plus, it has plenty of money in the bank and is free cash flow positive.
Trading GRPN Stock
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To be sure, that’s not the most bullish case in the world. The fact is, if Groupon was firing on all cylinders, it either would have been acquired or would be trading for more than $3.60. But that’s exactly where we have the stock after the company reported earnings. With a two-day rally into earnings, GRPN stock was showing signs of life ahead of its Q4 report. That life was quickly stomped out after the report.
It seems all we can find with this name is a series of silver linings. In the case of the fundamentals, it’s things like “flat growth, but better than last year,” or “at least Groupon’s profitable, although growth is slowing notably.” On the charts, we have another silver lining. Shares were pummeled post-earnings, but the 100-day and 50-day moving averages held up as support.
I’m not feeling the bullish conviction with Groupon stock, but for those who are, use these levels as your clues. Below these moving averages, GRPN stock is in trouble. Below the earnings-news low, shares will be in no man’s land.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
