Groupon Stock Has a Lot to Prove on Wednesday

By Rick Munarriz Markets Fool.com

The market hasn't been kind to Groupon (NASDAQ: GRPN) investors over the years. You have to go back three years to find the last time that shares of the daily-deals leader weren't trading in the single digits, and every time that the stock starts to gain some bullish traction it seems to blow it.

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The last few months have been particularly painful. Groupon stock is trading 32% lower since it posted disappointing financial results for the third quarter three months ago, something to keep in mind as the former dot-com darling steps up to report fourth-quarter numbers on Wednesday morning.

Wall Street isn't holding out for much. Analysts see revenue of $914.2 million for the fourth quarter, nearly flat with the $917.2 million it rang up a year earlier. They see a profit of $0.03 a share, just below the $0.04 a share it posted during the prior year's holiday quarter.

Stagnant top-line growth isn't a big deal at Groupon. It's a trend. Groupon's year-over-year revenue growth has clocked in between a decline of 2.5% and an increase of 3.8% throughout the past seven quarters, according to data from S&P Global Market Intelligence. It's a tight range, and one where the 0.3% dip that Wall Street pros are targeting fits right in.

Image source: Groupon.

Bouncing back

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Groupon stock took a 19% hit the week it reported its unsettling third-quarter results three months ago. The flat showing was actually better than expected, and the company's near-term outlook didn't seem problematic. However, its decision to acquire Living Social -- its onetime fierce rival -- didn't sit well with investors.

Last quarter's big drop seemed like an overreaction. Groupon was able to snag LivingSocial on the cheap, and the transaction will add a million customers and $60 million in annual revenue to the company's arsenal. It's also not fair to paint Groupon's performance over the past two years as sluggish with a broad brush. The company has been bowing out of poorly performing international markets, and gross billings in North America actually rose 6% in the third quarter.

At least one analyst agrees that last quarter's sell-off was overdone. Piper Jaffray's Samuel Kemp put out a new note last month, arguing that the risk-reward profile here is compelling. Kemp feels that the market's ho-hum outlook offers an easy hurdle to clear. He is sticking to his bullish overweight rating, and his price target of $6.50 suggests a healthy 82% of upside from here.

The stock is likely to be a big mover on Wednesday. It wasn't just volatile after its third quarter. The stock plunged 18% after posting its first-quarter financials, climbing 10% the day it announced its second-quarter results. In short, we've seen double-digit percentage moves on Groupon's earnings news. Growth may be stagnant, but recent history tells us that the stock price -- likely to move either sharply higher or lower -- won't follow suit.

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