Groupon (GRPN) Has Already Shocked Investors, But the Best is Yet to Come

Ten months ago, I penned some bullish thoughts on a little company called Groupon Inc. (NASDAQ:GRPN). For those of you with good memories and accurate mental calendars, you'll immediately recognize why that sounds a little odd - ten months ago was when the implosion of GRPN was undeniable. The much-ballyhooed stock had fallen from its initial publicly-traded price $28.00 per share in October of 2011 to a low of $4.00 just a few days before I chimed in. Though there was a small handful of Groupon supporters still saying "buy" whenever and wherever they could, by and large, the majority of investors not only didn't like the stock by that point (in the shadow of an 86% meltdown), they didn't even want to bother hating it any longer. Investors had simply mentally moved on. GRPN had reached what I call the 'apathy stage"... the point where the media stops covering it because nobody would be interested in hearing about the company any longer.

I'll confess the irony - why would I bother writing something I knew not many people would bother reading? The answer: While I'm a journalist who would love to draw a big crowd, first and foremost I'm an investor that wants to help other investors make money. At the time, Groupon Inc. was one of the best ways I saw of doing that. Since then, GRPN shares have advanced 92%. To the 1155 people who read my write-up then, and to the dozen or so who actually probably acted on it, you're welcome.

I don't revisit the stock to boast, however; I've had several picks and calls go more awry than I'd ever care to admit. I bring it up again as a way to re-convey the lessons that it took Groupon more than a year and a half to teach us. Those lessons are (1) companies on the verge of raising money via an IPO tell their story in the most bullish way possible, (2) the media drinks the Kool-Aid, (3) investors drink the Kool-Aid too, and (4) eventually, a company actually has to make some money. A failure to remember all four of those lessons let a lot of traders get burned by GRPN last year.

The thing is - and this is also a key lesson here - the Groupon concept was never a bad idea. It's a viable business model. It's just a matter of scale. The GRPN IPO was pricing the company as if the digital couponing craze would forever be a $6 billion annual business; Juniper went on to day that mobile coupon redemptions would hit $43 billion by 2016... a ridiculous assertion in retrospect. As it turns out, the digital couponing market is stabilizing around $3 billion to $4 billion per year, well shy of estimates when Groupon was basking in its glory days (when e-coupons were all the rage).

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The market is stabilizing, however, and $3 to $4 billion isn't exactly chump change. GRPN can - and will - carve out a nice thick piece of that pie. And, it'll do it mostly while nobody's noticing, as most investors have mentally closed the book on this once-disappointing name. Big mistake. Things are just now getting good, in a sustainable and well-supported way. Things like, you know, sales and earnings are on the horizon. Though the forward-looking P/E of 31.07 isn't cheap, it's not unusual for a tech/marketing company at this stage in its life. The price/sales ratio of 2.47 is the market norm. GRPN is a real company with a stock that's reasonably priced. It deserves to move higher, which is why it's doing just that. Time to wade in.

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