Shares of Groupon (Nasdaq: GRPN ) hit a new 52-week low today. The stock slid more than 5% to an all-time low on renewed fears about the company's ability to generate cash. Let's take a look at the challenges the daily deals site faces, and whether the fire-sale price tag creates a buying opportunity for investors.
A troubled existence
Groupon has been under fire (for good reason) since the company made its stock market debut last November, from pre-IPO investigations into false information in its S-1 to inflating its fourth-quarter revenue by $14.3 million. At this point, I think it's fair to say that this isn't just a case of Groupon working out the kinks of its novel business model.
The deal-of-the-day website is flooded with risk that many investors are tired of holding. In addition to its own internal issues, Groupon operates in a space that's crowded with hot-shot competitors such as Amazon (Nasdaq: AMZN ) and Microsoft (Nasdaq: MSFT ) . Amazon joined the party by investing $175 million in Groupon challenger LivingSocial.
Meanwhile, Microsoft started wheeling and dealing last year when it launched MSN offers. Clearly, this isn't a business that's difficult to enter. Groupon is down more than 60% year-to-date, which is decidedly lower than its rivals.
What's the deal?
Groupon continues to underperform the group. This is the second time this month that the stock has tumbled. On July 2 shares slid on news that Groupon Chairman Eric Lefkofsky was taking a step back from his role at the company. It's discouraging to see a Groupon co-founder turn his back on the company at such a critical time. In hindsight, Groupon shouldn't have turned down a possible takeover by Google (Nasdaq: GOOG ) for a rumored $5.3 billion.
However you cut it, things don't look good for the daily deals site. Concerns over the financial health of the business are nothing new. Not only do I think the current stock price is well deserved, but I also have little confidence in management's ability to turn things around. I stand by my underperform CAPScall on the stock.
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