Groupon (ticker: GRPN) experienced a significant boost in shares on Friday after an enthusiastic endorsement from Roth MKM analyst Sean McGowan. Launching coverage of the stock with a Buy rating and a target price of $30, McGowan's call nearly tripled Thursday's closing level of $11.94.
The stock price of Groupon saw an impressive 16% surge on Friday, reaching $12.68.
Amidst the challenging circumstances of the pandemic, Groupon faced a sharp decline in sales, with a 36% drop in 2020 as retail stores closed and travel came to a halt. Even as physical retail stores gradually reopened, Groupon struggled, experiencing sales declines of 32% in 2021 and 38% in 2022.
According to McGowan's research note, the need for discounts and coupons diminished as consumers had access to stimulus cash and yearned for a return to normalcy. Additionally, many restaurants and service providers faced staffing shortages, further reducing the necessity for discounts.
However, McGowan believes that the situation has now changed. Consumer savings have been depleted, inflation has diminished purchasing power, and there are concerns about an impending recession. Based on these factors, McGowan anticipates a strong increase in Groupon's revenue in the near future.
The analyst also highlights that Groupon's ability to generate cash during periods of growth is significantly undervalued. He notes that the company still has $245 million remaining in its existing stock repurchase plan, which has been dormant since before the pandemic. According to McGowan, Groupon is expected to resume stock buybacks by mid-2024.
In addition to this, McGowan identifies untapped potential in Groupon's non-core assets, such as its wholly-owned GiftCloud unit, which offers corporate gift services, and its modest stake in U.K. fintech company SumUp.
Earlier this week, Groupon faced a decline in shares following the announcement of an agreement to sell a portion of its stake in SumUp, which implied a lower valuation than what investors had previously estimated.
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