Please ensure Javascript is enabled for purposes of website accessibility

Why Groupon Stock Just Tumbled 12.5%

By Rich Smith – Jun 10, 2020 at 4:34PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors flee the prospect of a reverse share split.

What happened

The clock is ticking down on trading for Wednesday, and Groupon (GRPN 1.38%) stock is ticking down with it -- off 12.5% in the day's final 15 minutes.

So what

Why is that? As Groupon advised this morning, its Annual Meeting of Stockholders yesterday approved a 1-for-20 reverse share split. In this scenario, investors who owned, say, 1,000 shares of the Groupon stock this morning will end up with just 50 shares when trading resumes tomorrow. 

"The reverse stock split will become effective at 5:00 p.m. Eastern time on June 10, 2020," said Groupon. But it appears a lot of investors aren't interested in waiting for the closing bell to ring. They're selling their shares ahead of the reverse split.

Paper circle cut into several slices by two businessmen holding scissors

Image source: Getty Images.

Now what

Should you sell, too? Not necessarily. After all, it doesn't really matter that much whether you take two slices of a pie cut four ways or eat half a pie that's sliced right down the middle. The number of "shares" into which Groupon stock splits itself doesn't affect the value of the company a whit.

That being said, the reason Groupon is doing a reverse split may concern you.

Just a few months ago, Groupon stock had sunk into penny stock range, bottoming at just $0.55 per share on March 16 and raising fears the stock might be delisted from the Nasdaq. A reverse split reduces the risk that Groupon will end back up in such dire straits again because shares today that trade for about $1.40 each should cost closer to $28 tomorrow, and thus not fall afoul of Nasdaq's listing requirements.

Then again, Groupon stock hasn't earned a profit in either of the past two years, and isn't expected to be profitable this year or return to profitability any time before 2024 at the earliest, according to analysts polled by S&P Global Market Intelligence.

That fact alone might be a good reason to sell Groupon stock, regardless of how many shares of stock the company is divided into.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Groupon, Inc. Stock Quote
Groupon, Inc.
$8.07 (1.38%) $0.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.