Groupon (GRPN) used to be the laughing stock of social media firms. Lousy earnings reports. Accounting issues. A CEO who just seemed a little too green to be dealing with Wall Street.
Those days appear to be over. Shares of the daily deal site surged more than 13% Friday after Deutsche Bank upgraded the stock to a "buy." Groupon is now up 60% year-to-date and is 200% above its 52-week low. The stock has been on a tear since the company ousted CEO Andrew Mason at the end of February.
Deutsche Bank cited growth in mobile as one of the key reasons for its upgrade. And many traders on StockTwits are equally bullish.
It looks like a lot of the haters left along with Mason. I do think that a huge reason for Wall Street's new-found confidence in the company is due to the fact that Mason was replaced by Groupon co-founder Eric Lefkofsky and veteran Internet executive Ted Leonsis of AOL (AOL) fame. Lefkofsky and Leonsis are acting as co-CEOs.
Good point. Even after today's rally, Groupon is still more than 30% below its 52-week high. What's more, it's 60% below its IPO price of $20 from late 2011. And the company's market value, now around $5.2 billion, remains lower than the rumored $6 billion that Google (GOOG) offered Mason for the company back in December 2010.
But some traders weren't sure that Groupon can keep climbing.
Groupon has been a heavily shorted stock in the past. The recent rally may bring back more shorts to the table. And it's true that analyst upgrades are not always synonymous with real improvement in fundamentals.
Analysts are expecting sales growth of only about 10% this year and next. That's better than no growth of course. But Groupon now trades at more than 25 times 2014 earnings estimates. To justify that price, Groupon's top and bottom line growth is going to need to be better than low double-digits.
Finally, one trader made light of the fact that for a company that makes its living by offering consumers deals, its shares may no longer be a bargain.
Time for the Reader Comment of the Week. I wrote a column this week about how shares of several companies with new-ish CEOs have been outperforming the market. Groupon, in fact, was mentioned in that piece. But I also noted that investors only like to see bad CEOs leave, not the good ones. Case in point: Christine Day at yoga apparel retailer lululemon (LULU).
Despite the short-term issue with the recall of those translucent black pants, lululemon's stock was trading at an all-time high ahead of the company's earnings report. But then Day dropped a downward dog bombshell on investors by saying she was leaving the company. The stock plunged 18% Tuesday and another 5% Wednesday ... even though the earnings were good. One jokester on Twitter had this to say about LULU.
Two puns are better than one! Namaste.
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