Image source: Groupon.

What: Shares of Groupon (NASDAQ:GRPN) got clobbered today, down by 10% as of 3:18 p.m. ET, after the company received an analyst downgrade.

So what: UBS dropped its rating on Groupon from neutral to sell, maintaining a $3.20 price target. Groupon faces intense competition in the local ad and local e-commerce markets, yet it lacks any meaningful competitive advantage over rivals. That's especially true when it comes to competing against much larger advertising companies that enjoy scale and are more innovative.

Now what: Shares jumped last month after Groupon reported better-than-expected earnings, but those higher prices may not be deserved, at least in UBS' opinion. The downgrade was very much related to recent price jumps, since current prices may not be warranted; some of the rally may have simply been short covering, and the company's valuation multiples now look stretched relative to UBS' earnings estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.