Groupon, Inc. (NASDAQ:GRPN) shareholders should be happy to see the share price up 27% in the last month. But that is little comfort to those holding over the last half decade, sitting on a big loss. Indeed, the share price is down 59% in the period. Some might say the recent bounce is to be expected after such a bad drop. Of course, this could be the start of a turnaround.
Groupon wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last five years Groupon saw its revenue shrink by 4.0% per year. That's not what investors generally want to see. With neither profit nor revenue growth, the loss of 16% per year doesn't really surprise us. We don't think anyone is rushing to buy this stock. Not that many investors like to invest in companies that are losing money and not growing revenue.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Groupon stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Investors in Groupon had a tough year, with a total loss of 20%, against a market gain of about 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 16% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality business. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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