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Why Groupon Stock Popped 5% This Morning

By Rich Smith – Jun 23, 2020 at 12:12PM

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Groupon chairman buys some good news -- for $5.4 million.

What happened

Shares of e-coupon hawker Groupon (GRPN -2.94%) surged more than 5% in early trading Tuesday before falling back to about a 3.2% gain as of 11:50 a.m. EDT. You can probably thank company co-founder and chairman Eric Lefkofsky for that.

Last night, after close of trading, Groupon filed a Form 4 with the SEC notifying it that on June 18, Lefkofsky spent $5.4 million to purchase a total of 250,000 shares of Groupon common stock.

Brightly colored promo code coupon shown on a smartphone.

Image source: Getty Images.

So what

Investors appear to be taking Lefkofsky's purchase as a sign that Groupon stock is once again worth buying, the more so because the prices that the chairman paid -- $21.42 on average for a first lot of 35,000 shares and then $21.59 on average for the remaining 215,000 shares -- were above the $20.54 that Groupon stock cost at the time of writing.

Logical or not, when you get the chance to buy a stock at a price lower than an insider paid for it, to many investors, that sounds like a bargain.

Now what

Is it a bargain, though? Groupon stock is currently halfway through its third straight year of losing money, and according to data from S&P Global Market Intelligence, the company has begun burning cash (reporting negative free cash flow) as well. Analysts who cover the stock are forecasting continued losses for Groupon stock almost as far as the eye can see. The earliest most analysts believe Groupon might resume reporting profits is 2024.

With losses mounting and a recession looming, Groupon stock might not make it that long.

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.

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