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Groupon's Shares Are Its Own Best Deal, Despite the Analysts

Stocks in this article: GRPN FB GOOG GOOGL YHOO AMZN EBAY

NEW YORK (TheStreet) -- Groupon (GRPN) investors have gotten a raw deal for most of 2014. Ever since the deals giant reached a year-to-date high of $12.42 in January, shares have been under pressure, falling roughly 50%. The stock, at $6.40, is down over 45% for the year to date.

Investors received some much-needed good news Tuesday. Analyst Sameet Sinha at B. Riley upgraded Groupon shares to buy from neutral while also raising his price target from $6 to $9.50. This represents a 47% premium from Monday's close of $6.45, making the stock one of the best deals on the market.

The way I see it: As long as Groupon continues to move in the right direction with revenue, profits and its global expansion initiatives, investors will do well. The problem is analysts disapprove of Groupon's use of capital. In other words, any money Groupon uses to grow the business is seen as "burning through cash."

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By contrast, Facebook (FB) can spend $19 billion on WhatsApp and it's seen as a long-term investment. To that end, Groupon seems misunderstood and it can't escape its past questionable decision-making. But this isn't the same company. Analysts should suck up the short-term pressures on profits and see the big picture.

Management is working to develop strategies to turn this company into a long-term sustainable business. The more pressing question is to what extent management can transition the company away from a niche coupon business to an international brand with a respected moat.

Also Groupon, unlike potential rivals like Google (GOOG) and Yahoo! (YHOO), can only operate in existing markets. The company has not shown yet that it can create markets, which makes its future less clear.

Management understands this and has made this a priority. But it's not going to happen overnight and it's certainly not going to come without significant capital investments.

All of that said, Groupon has not performed as poorly as the stock's decline might indicate. The company is still growing revenue at 26% rate and profits have advanced at modest 2%.

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