Groupon (NASDAQ:GRPN shareholders incur further losses as stock declines 13% this week, taking five-year losses to 71%
Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Groupon, Inc. (NASDAQ:GRPN) during the five years that saw its share price drop a whopping 71%. On top of that, the share price is down 13% in the last week.
Since Groupon has shed US$105m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Check out our latest analysis for Groupon
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Groupon moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
It could be that the revenue decline of 17% per year is viewed as evidence that Groupon is shrinking. That could explain the weak share price.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Groupon has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Groupon
A Different Perspective
Investors in Groupon had a tough year, with a total loss of 13%, against a market gain of about 30%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 11% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Groupon better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Groupon (including 1 which is significant) .
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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