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Is Groupon, Inc. (GRPN) Ready To Get Its Groove On?

 February 14, 2013 12:27 PM

(By Rich Bieglmeier) Sterne Agee analyst, Arvind Bhatia gave the couponer a boost yesterday after upgrading the stock from "Neutral" to "Buy" with a $9 price target. Bhatia added to the bold call with, "This is an out-of-consensus upgrade predicated on a more constructive longer-term view of the company. We have greater conviction in the company's ability to evolve beyond its current business."

The upgrade follows superstar hedge fund Tiger Global taking a 9.9% stake in the one time high flying IPO in late November 2012; up more than 65% since the aggressive buy.

Speculators, perhaps institutions, too, appear to be loading up bets on GRPN. Call option volume and open interest are robust for the February, March, April and July expirations months. For February, today's call volume is outpacing put volume by nearly 3:1 and open interest favors calls by 2.2 to 1 over puts. Volume-wise, things are a little more even-Steven in the out months, but iStock sees similar call to put discrepancies with open interest standing at 188,514 in total for the month's mentioned above - that's a lot.

[Related -Groupon Inc (GRPN): RBC Upgrades Recommendation, With 16% Downside – Say What?]

As we examine GRPN's candlestick chart, iStock sees a line of resistance at $5.71. If shares can break through today's trading range, then the next level of resistance is in the $6.50 to $7.50 zip codes. After that, Bhatia's price target. Yesterday's upgrade delivered the best day of accumulation volume in 2013, and last three months – a good sign. Stockcharts.com's free Point & Figure analysis has a bullish price objective of $9.25 on a double top breakout on December 7, 2012.

[Related -Call Options Active on Groupon]

It appears that Sterne Agee is not alone in its conviction, GRPN head honcho Andrew Mason told the economic Times, "[Groupon] will touch $5 billion in sales when results are out for FY2012." Maybe he misspoke in the New Delhi hotel, or maybe the questioner misheard because Wall Street's consensus revenue target for 2013 is $2.76 billion with a high estimate of $3.27 billion.

If Mason spoke clearly and the reporter got it right, then $9 might be conservative. As we type, GRPN trades at trailing-twelve-month (TTM) price-to-sales ratio (P/S) of 1.5, and with a forward P/S of 0.76 based on Mason's quote.

In its limited life as a publicly traded company, GRPN's average P/S is 2.5. At the CEO's $5 billion figure and the current P/S; the stock would be priced at $11.27. At the average P/S, Groupon's glory days would be back at $$18.77.  At the all-time low P/S – albeit limited history – of 0.6979, shares would be worth $5.24, a little lower than today's price.

For fun's sake, at the all-time high P/S of 6.445, Groupon would almost be an 8.5 bagger at $48.41!

Overall, Groupon, Inc. (GRPN) is aggressively moving into the mobile space and making strategic acquisitions. Either Mason had a slip of the tongue, or his forecast is based on the company's success in the arena and the source of "greater conviction." We'll know more when the company report earnings on February 27, 2013.



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