What a Difference a Year and a Half Makes - GRPN Comes Full Circle

Feb 13, 2013 7:28:43 AM PST | 205 View(s) | No Comment(s) - Post a Comment Rating

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GRPN
$7.76 +$0.08 +0.98%

Trading can be a funny game sometimes. More often than not, it seems, the worst time to buy a stock is when everyone is going nuts about it. The best time to buy a stock is when nobody is talking about it. With that in mind, are you hearing the deafening silence surrounding Groupon Inc. (NASDAQ:GRPN)?

What a whirlwind it's been in just a little less than a year and a half. Right around the IPO in October of 2011, the company could do no wrong; only an idiot wouldn't want to own some. Almost immediately after the public offering though, Groupon shares began to slide from their immediate-post-IPO peak of $31.14 (hit the same week as the offering) to what would eventually be a low of $2.60 by late 2012.

What's interesting, however, is how the media's - not to mention traders' - rhetoric changed over that time.

The strong pullback from November of 2011 was simply dismissed as predictable profit-taking; the underlying value for Groupon was still intact. By early 2012, some of those fans were at least willing to admit the company had some challenges, but was still a hit growth story. By late 2012, frustrated investors finally started to realize just how shy growth was compared to the hype from mid-2011... before the IPO. Indeed, some of Groupon's business model flaws were really coming back to haunt the company. Be December, neither the media nor investors were still even interested in talking about GRPN, largely wishing the whole thing had never happened.

And that's when the turnaround began, at least for the stock.

The nearby chart of Groupon Inc. leaves little doubt. The stock's back above its 100-day moving average line, and still inching higher. It's not going to win any races, but progress is progress. And, if the stock can just fight its way past that ceiling around $5.60, that could be enough to breathe new life into the bigger bullish effort.

What's really compelling - maybe even surprising - about Groupon though, is that the company's business is starting stabilize and show promise. The top line has been steady for three quarters now, right around $560 million for each quarter. Income has been choppy, but that's not a surprise; expenses are difficult to predict or control for young startups. The company is viable, however, even if nobody's talking about it anymore. A great business? No, not yet, but a decent one that's at least worth a look. The forward-looking P/E (which is a total guess, but at least an educated one) of 23.3 is palatable, and the price/sales ratio of 1.59 is actually below average. You could do a lot worse, but more than that, you can now start to make buy/sell decisions based on a plausible future now that the future is a little clearer.

Perhaps Warren Buffett said it best when he said you can't buy what's popular and expect to do well. Or, maybe Baron Rothschild said it best when he advised to buy when there's blood on the streets. Either way, they loved Groupon then, and they don't love it now despite that fact that GRPN is more reliable and more valuable than it's ever been before.

Welcome to the market.

Bryan Murphy is a paid contributor of the SmallCap Network. Bryan Murphy's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.