This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Groupon's Dip and an Incorrect Call Teach an Important Lesson

NEW YORK (TheStreet) -- My recent buy recommendation on Groupon (GRPN - Get Report) completely missed the mark -- to put it mildly. That has caused me to rethink my stock evaluation process. The stock (then) traded at $6.46.

Groupon's stock closed Wednesday at $5.76, down 1.71%. Shares have plummeted 51% year to date.

Since my bullish recommendation a week ago, Groupon has lost almost 11% of its value. And given the company's struggles with rising costs and competition for advertising dollars, things won't rebound anytime soon. At the time, I said:

From my vantage point, there is at least 40% upside in shares of Groupon in the next 6 to 12 months. During that span the stock should reach $9 on the basis of margin expansion, cost-reduction and free cash flow growth.

Read More: 8 Stocks George Soros Is Buying in 2014

Clearly, I was wrong. The most important lesson learned was this: Though the market may be inefficient, it's not always wrong. There's a difference.

Matching Groupon's growth forecast with that of other Internet/retail companies such as Amazon (AMZN - Get Report) (price-to-earning ratio of 157) and Facebook (FB) (P/E of 35) was not enough. My mistake was looking at Groupon's forward P/E of 25 and thinking that it implies value.

Instead, I should have looked at Groupon's underlying operation and the company's prospects to make money. As it stands, management's plan to transform the company is falling short of expectations, despite what its recent 26% revenue growth rate might suggest.

The other thing is, while Groupon's gross billings have improved, that alone does not signal the level of strength that this metric would ordinarily indicate. Gross billing is the metric that reflects the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds.

Read More: 5 Retailers Fighting Back Against Amazon for Back-to-School Sales

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AMZN $385.69 1.50%
GRPN $8.17 -0.12%
AAPL $128.67 0.16%
FB $79.41 0.56%
GOOG $569.10 1.90%

Markets

DOW 18,252.50 +119.80 0.66%
S&P 500 2,112.88 +8.38 0.40%
NASDAQ 4,991.2120 +27.6850 0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs