The Foolish Fundamentals
Groupon’s fundamentals are also nothing to write home about.
| Forward P/E | 5-year PEG | Price to Sales (ttm) | Price to Book (ttm) | Debt to Equity | Return on Equity (ttm) | Profit Margin | |
| Groupon | 18.13 | 0.95 | 1.79 | 4.90 | No debt | -4.26% | -1.77% |
| 34.01 | 1.64 | 12.58 | 5.39 | 20.04 | 0.64% | 1.04% | |
| 14.97 | 1.28 | 5.25 | 3.68 | 10.05 | 16.61% | 21.40% | |
| Amazon | 72.92 | 4.38 | 1.96 | 14.89 | 53.53 | -0.49% | -0.06% |
| Best Value | Groupon | Groupon | Groupon |
Source: Yahoo Finance
While the stock may seem deceptively undervalued in terms of its 5-year PEG ratio and clean balance sheet, the company’s negative profit margins make its price-to-book ratio of 4.90 look downright frightening. Following Buffett and Graham’s theory of value investing based on book value, Groupon needs to shed another 80% of its market cap before it can be considered undervalued.
That theory would only work if Groupon can keep growing revenue and cash reserves at sustainable rate.
GRPN Cash and Equivalents data by YCharts
On the surface, things don’t look too horrible, but expenses are rising while free cash flow growth is decreasing.
GRPN Revenue TTM data by YCharts
Its top and bottom line growth also shows some positive signs of growth, but right now investors are probably too horrified by its recent 25% plunge to notice that its earnings growth is actually outpacing its revenue growth — an encouraging sign that its operating margins are under control.
A New CEO?
Calls for founder and CEO Andrew Mason to step down have been resonating in Wall Street for over a year now, after the company’s 2011 IPO failed to gain any traction with investors. Mason has often been portrayed by the media as quirky and offbeat, and he didn’t do himself any favors by posting videos of himself doing yoga in his underwear before the company went public.
Much like Facebook’s hoodie-wearing Mark Zuckerberg, Mason has clearly stated that he wasn’t the “Wall Street” type. However, while Wall Street now shows Zuckerberg some degree of faith, after Facebook’s recent earnings showed strong mobile advertising revenue, few analysts are standing behind Mason.
The Foolish Bottom Line
There’s no question that Groupon needs to get its act together before it gets obliterated by its larger, better funded rivals. Although Groupon has over 200 million registered users, only approximately 25% have actually signed up for a deal on the site. Low barriers to entry are also a major threat to the company that is now struggling to stand out in the niche market that it created. Add these to a potential to plunge another 80% before hitting book value, and you’ve got one daily deal that would be smarter to pass on.
The article Is Groupon’s Stock a Daily Deal or a Done Deal? originally appeared on Fool.com and is written by Leo Sun.
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