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Why Groupon, Inc. Gained This Morning

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Groupon, Inc.  (NASDAQ: GRPN  ) surged 5% this morning after Wells Fargo upgraded the daily deals specialist from market perform to outperform.

So what: Along with the upgrade, analyst Trisha Dill boosted her valuation range to $13.00-$14.00 (from $5.00-$6.00), representing about 35% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's slide in recent months, Dill believes that Groupon is ready to bounce, given how nicely management's strategic and growth initiatives are gaining traction.

Now what: Wells now expects Groupon to post 2013 EPS of $0.08, and 2014 EPS of $0.25. "We believe Groupon is positioned well to take continued share in the massive local commerce market," noted Wells. "We also view mobile commerce as an incremental opportunity for Groupon given mobile users buy 50% more than non-mobile users, app downloads are accelerating (9MM in the most recent quarter, up from 7.5MM in Q2), and Groupon's mobile offering is improving." With Groupon shares up nearly 150% from their 52-week lows, and trading at a 40-plus forward P/E, however, I'd wait for a much wider margin of safety before buying into that growth.

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Related Tickers

9/30/2016 4:00 PM
GRPN $5.15 Up +0.05 +0.98%
Groupon CAPS Rating: *