NEW YORK (TheStreet) -- Shares of consumer deals giant Groupon (GRPN) have been under pressure for most of 2014. The company reports earnings Tuesday. The stock, at around $7, is down 41% for the year to date.
The way I see it, investors have gotten a raw deal. It's not that Groupon has done anything wrong but Wall Street can't make up its mind what it wants management to do.
Investors, don't be discouraged. Now is the time to buy a company that is on the cusp of a major transformation. In a couple of quarters, analysts will have no choice but to raise their estimates and price targets. In the meantime, the stock, which is trading at just 25 time 2015 estimates, is cheap.
When you match Groupon's growth forecast with that of other Internet/retail names like Amazon (AMZN) (P/E/ of 157) and Facebook (FB) (P/E of 35), you can see that Groupon is trading at a meaningful discount to its peers.
From my vantage point, there is at least 40% upside in shares of Groupon in the next six to 12 months. During that span the stock should reach $9 on the basis of margin expansion, cost-reduction and free cash flow growth.
Analyst Sameet Sinha at B. Riley, who has a price target of $9.50 agrees. Sinha recently upgraded Groupon shares to buy from neutral. But the rest of Wall Street is not buying into management's plans to remake the company. Edward Woo of Ascendiant Capital Markets, who has a $5 price target on the stock, was bearishly blunt, saying: "We are not yet convinced that Groupon is on a consistent path towards growth and profitability and believe its share price is likely to remain volatile and weak until it demonstrates it can grow both consistently."
Ahead of Tuesday's second-quarter report, Woo predicts that Groupon will offer weak third-quarter guidance. But that doesn't really matter.