Groupon (GRPN) Is Water-Logged And Getting Wetter Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Groupon ( GRPN) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Groupon as such a stock due to the following factors:

  • GRPN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $79.0 million.
  • GRPN has traded 1.2 million shares today.
  • GRPN traded in a range 282.5% of the normal price range with a price range of $0.56.
  • GRPN traded below its daily resistance level (quality: 16 days, meaning that the stock is crossing a resistance level set by the last 16 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on GRPN:

Groupon, Inc. operates online local commerce marketplaces that connect merchants to consumers by offering goods and services at a discount worldwide. It also offers deals on products for which it acts as the merchant of record. Currently there are 6 analysts that rate Groupon a buy, 1 analyst rates it a sell, and 12 rate it a hold.

The average volume for Groupon has been 16.2 million shares per day over the past 30 days. Groupon has a market cap of $4.8 billion and is part of the technology sector and internet industry. The stock has a beta of 0.73 and a short float of 12.3% with 6.77 days to cover. Shares are down 40.2% year-to-date as of the close of trading on Thursday.

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TheStreet Quant Ratings rates Groupon as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet & Catalog Retail industry. The net income has significantly decreased by 202.0% when compared to the same quarter one year ago, falling from -$7.57 million to -$22.88 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Internet & Catalog Retail industry and the overall market, GROUPON INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$22.75 million or 152.53% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.62%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 200.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • GROUPON INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, GROUPON INC reported poor results of -$0.14 versus -$0.10 in the prior year. This year, the market expects an improvement in earnings ($0.08 versus -$0.14).


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