1-Star Stocks Poised to Plunge: Groupon?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, "daily deal" specialist Groupon (NAS: GRPN) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Groupon's business and see what CAPS investors are saying about the stock right now.

Grouponfacts

  
Headquarters (Founded)Chicago (2008)
Market Cap$15.3 billion
IndustryInternet retail
Trailing-12-Month Revenue$1.29 billion
ManagementCo-Founder/Chairman Eric Lefkofsky CFO Jason Child
Trailing-12-Month Operating Margin(29.3%)
Cash/Debt$243.9 million / $0

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 89% of the 480 members who have rated Groupon believe the stock will underperform the S&P 500 going forward. These bears include All-Star TMFBreakerJava, who is ranked in the top 1% of our community, and divinezone.

Earlier this month, TMFBreakerJava tapped Groupon as a particularly bad deal: "Another over-hyped IPO. How does this model scale when all the markets are local? What are the barriers to entry?"

In fact, Groupon currently trades at a price-to-sales multiple of 11.5. That represents a clear premium to much larger tech rivals like Amazon.com (NAS: AMZN) (2.2), Google (NAS: GOOG) (5.4), and Microsoft (NAS: MSFT) (3.1).

CAPS member divinezone elaborates on the bear case:

Drastically overvalued. Current stock price is a beneficiary of the hysteria and hype surrounding Internet IPOs. The business model is WAY too easy to copy, and the imitators have already begun to spring up. With more mature, cash-rich behemoths like Google and Facebook just becoming established as competitors, Groupon will crash and burn. No barriers to entry, no sustainable competitive advantage, no thanks!

What do you think about Groupon, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Interested in another easy way to track Groupon? Add it to your watchlist.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Google and Microsoft. Motley Fool newsletter services have recommended buying shares of Amazon, Google, and Microsoft, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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