(By Kevin Donovan) The market may be sloppy today, but shares of much besmirched Groupon Inc. (GRPN) are strutting handsomely ahead of the company's earnings announcement after the close. After gaining about 12% in Friday's trading session, the stock was recently quoted at $7.74, up more than 4%, compared with the S&P 500's 0.4% decline.
The action suggests a "whisper" number above analysts' expectations could be afoot, but even in that event we still think the share price is too rich.
Consider that analysts estimate on average that Groupon earned $0.03 per share in the quarter ended in June, with a range of forecasts between $0.01 and $0.05. Revenue estimates for the quarter average $573.13 million with a range of $549 to $589 million. If earnings are in line with expectations, the stock would be valued at an incredible 258 times earnings.
The PE based on the current average 2012 estimate of $0.18, is a more reasonable 43, still pricey we think, for a company that has run into a buzz saw of criticism that challenges Groupon's business model.
Groupon operates as a local commerce marketplace that connects merchants to consumers by offering goods and services at a discount in North America and internationally. The company sends daily emails to its subscribers regarding discounted offers for goods and services that are targeted by location and personal preferences. Consumers also access its deals directly through the company's websites and mobile applications. The company was founded in 2008 and is headquartered in Chicago.
But businesses that have signed on with Groupon have been grumbling that the company's terms are too dear and some have blamed their Groupon contracts for their failure.
Investors have a lot to complain about as well. The share price is down 75% from the November initial public offering and is off more than 60% in 2012.
Given doubts about Groupon's business model and the possibility of discounting to keep merchants on board, we think it's too late to catch the pop in shares and would be sellers on further strength.