Is Groupon (GRPN) stock overvalued after falling to a record low

Shares of Groupon Inc. (NASDAQ: GRPN) plunged over 50% to a record low of $1.57 on Friday as investors expect the top-line deceleration to continue with no sign of slowing down. The market experts believe that the stock has taken a deep dive into the red zone, which is not likely to recover in the near term.

The company has taken stringent steps to leverage its global leadership position in local commerce to focus on local and travel categories and to exit the goods category by the end of 2020. The company intends to shift its focus from goods category to inventory, modernization, brand, and marketing strategy, as well as reduce cost structure.

Groupon believes that it will be well-positioned to compete in its more differentiated local experiences business. The company plans to relaunch its brand in the second half of 2020 in an effort to evolve its image from deal-centric to a local experiences marketplace. The traffic to the company’s site has been impacted by fewer customers engaging with the goods category.

In recent years, the traffic to the company’s websites and mobile applications has declined and this led to an increase in the proportion of traffic generated through paid marketing channels. The bottom line results continued to be impacted by active customers. Also, the company is needed to attract and retain high-quality merchants and third-party business partners in order to increase profitability.

For the fourth quarter, the company reported disappointing earnings results that failed to meet the financial expectations. This shortfall along with the significant headwinds have called for a profound turnaround strategy. Groupon is taking decisive action to return the company to grow with high-single-digits billing growth are likely by 2022.

The company believes the local experiences remained as a $1 trillion opportunity. The company believes it could achieve the expectations based on its accelerated pace of product launches and other execution successes. Meanwhile, the market experts believe that the turnaround strategy could take at least a year for implementation and revenue generation. This could hurt the results and stock.

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The stock, which ended at $1.65, is below the 50-day moving average of $2.75 and the 200-day moving average of $2.73. The stock is likely to be overvalued as the forward price-to-earnings (P/E) ratio of 6.35 is higher than the growth rate of 0.22 and the earnings during the years since 2015 have shown fluctuations of profit and loss. Added to this, the demand for its goods continues to weaken and this is likely to impact future growth.

The price/earnings-to-growth (PEG) ratio is at 1.40 and this ratio is used to determine a stock’s true value. Following this, the stock is likely to dive lower in the near-term. Half of the market analysts are turning their stock recommendation to “hold” while an equal number of the rest were divided between “buy” and “underperform”.

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