Summary
- Retail stocks have come under pressure after a solid start to 2023.
- Groupon reports Q4 results Monday next week, and shares trade somewhat cheap versus history.
- I spot key price levels on the chart to monitor.
Retail stocks recently posted their worst day since September last year as the strength of the consumer is being called into question now that the Fed will keep its foot on the economic brake pedal for much longer. The terminal rate is now seen near 5.3% and is expected to remain above 5% through year-end. What’s more, credit card data show that the average APR on balances is above 20%.
Groupon (GRPN) shares have been taken to the woodshed in recent years, but can you buy them on the cheap now ahead of the firm’s Q4 report? Let’s do some browsing on this retail name.
Retail Wrecked Following WMT, HD Earnings, Higher Rates
According to CFRA Research, Groupon, Inc. together with its subsidiaries, operates a marketplace that connects consumers to merchants. It operates in two segments, North America and International. The company sells goods or services on behalf of third-party merchants; and first-party goods inventory. It serves customers through its mobile applications and websites.
The Chicago-based $219 million market cap Internet & Direct Marketing Retail industry company within the Consumer Discretionary sector does not have positive trailing 12-month GAAP earnings and it does not pay a dividend, according to The Wall Street Journal. Ahead of earnings later this month, the stock has a high 30% short interest per Seeking Alpha.
Back on January 30, Groupon joined the list of tech-related stocks slashing jobs. The firm announced that its new restructuring phase would include a downsizing of 500 positions . That news came after November’s earnings and revenue miss.
On valuation , while yet another quarter of operating losses is expected, Groupon trades at just 0.36 times forward sales numbers. On an EV/sales basis, it is under 0.5 - well below the industry median of 1.2. Given that the 5-year average for those two multiples are 0.7 and 0.6, respectively, there is a value case here.
Of course, it’s highly risky given the firm’s lack of profitability. Still, even a jump in the share price from near $7 today to around $10 would not make it expensive relative to history. I think that could happen fundamentally with some aid from the charts.
Groupon: A Valuation Rating, But Not Profitable
Seeking Alpha
Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q4 2022 earnings date of Monday, February 27, after the close. No other volatility catalysts are seen on the calendar, though.
Corporate Event Risk Calendar
The Options Angle
Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of -$0.40 which would be a steep drop from $0.18 of per-share profits earned in the same period a year ago. Groupon posted a slight earnings miss in the November quarter, but shares rose big on the earnings date – that came after three straight negative earnings reactions. So, the beat rate history and how shares trade post-reporting is a really mixed and volatile bag.
Speaking of volatility, option traders have priced in an 11.7% earnings-related stock price move next Monday using the at-the-money straddle expiring soonest after the reporting date. That is a bit lower than straddles from previous earnings dates, and given the November 27% jolt, that’s actually not an overly expensive amount of premium. Risk-seeking traders could go long options here.
GRPN: Options Not Expensive Into Earnings
The Technical Take
Here’s the crux of it. The chart suggests that Groupon may be basing out. I was bearish on the name back in November since the downward trend showed no signs of stopping. Now, however, there are a few reasons to be optimistic. Notice in the chart below that shares have support in the low $6s.
After making a low there in October, the stock barely undercut it in December before launching to just under $10 – near the November post-earnings high. Also, the RSI momentum indicator is on the mend even with that slightly lower low in the stock price. Let’s keep going – the downtrend resistance line off the early 2022 spike is in jeopardy. Of course, the 200-day moving average is falling, and long-term investors would certainly want to see GRPN close above that to help support a broader reversal.
Overall, though, I see green shoots with this highly volatile small stock. Long now with a stop under $6 makes sense, targeting near $10.
GRPN: Basing Pattern, $10 First Target
The Bottom Line
I like GRPN here ahead of earnings. The valuation is not high, and a move to $10 would still leave it inexpensive versus history. That is also where the chart suggests a favorable risk/reward target lies ahead of earnings Monday next week.
For further details see:
Groupon: Eyeing A Bounce Post-Earnings