Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
U.S. stocks fell for the third straight day today, with the S&P 500 (^GSPC 0.02%) down 0.4%, while the narrower, price-weighted Dow Jones Industrial Average (^DJI -0.11%) lost 0.3%. This is the S&P 500's first three-day losing streak since mid-June, when the market was experiencing its first bout of "withdrawal fears" brought on by the possibility of an "early" (read: current year) reduction in the Fed's massive bond-buying program.
The losses of the past couple of days look very much like a new manifestation of those same fears. The nature of the market's reaction indicates the severity of the patient's addiction to Fed liquidity -- we're hardly talking about going cold turkey here, merely the mention that, perhaps, if such and such data improves, the Fed could perhaps begin to reduce the size of its monthly bond purchase.
Today's losses were enough to see the CBOE Volatility Index (VIX) (^VIX 1.75%), Wall Street's "fear index," add another 2% to close just below 13, after bottoming out at 11.84 on Monday. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
Groupon shares pop, but don't be fooled
Groupon (GRPN 0.57%) shares are up more than 20% in the after-hours session despite swinging to a $0.01-per-share loss in the second quarter from a $0.04 profit in the year-ago period. It appears that investors (or those trading the after-hours session, in any case) are more focused on the fact that the company beat expectations with regard to revenue, booking $608.6 million against a consensus estimate of $606.2 million.
Call me a curmudgeon, but I'm not impressed. First, "beating" revenue expectations by 0.4% is really meeting expectations. Second, although North America produced strong year-on-year revenue growth of 45%, outside of its home region, revenue collapsed by a quarter (the chickens of a runaway international expansion coming home to roost). All told, revenue was up by just 7% year on year.
Groupon's stock has been on fire this year (see the blue line in the following graph -- the most recent spike represents today's after-hours session), beating the market and even outperforming Facebook:
Nevertheless, I wouldn't touch the stock with one of the company's coupons. Let's talk hard numbers here: This is a company that has produced just $75 million in free cash flow over the trailing 12 months ending June 30. It's going to have to do much, much more than that to support a $5.8 billion market capitalization -- and that figure is before the after-hours pop in the share price (that's already 76 times multiple, in case you're wondering). If you have that kind of confidence in Groupon's growth prospects and the quality of its business model, be my guest, but I simply don't see how that confidence is warranted.
