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Can Groupon Stock Keep Going After Last Week's 9% Pop?

A Wall Street pro is feeling less bearish about Groupon (NASDAQ: GRPN), sending the stock 9% higher last week. Christopher Merwin at Goldman Sachs upgraded Groupon, arguing that the year ahead should be a strong one for the flash-sales leader. The formerly bearish Merwin is now neutral on the stock. He's lifting his price target from $4.70 to $5.40.

Merwin feels that improving gross profit growth and cost-shaving initiatives will help drive bottom-line results through 2018. He does feel that the stock is currently fairly valued. There's a reason why it's an upgrade from sell to just neutral, and the subsequent spike in the shares following the upgrade pushed Groupon to close out the week above his target price. However, it's obviously better to have someone who is lukewarm on a stock than bearish.

Nine projection TVs spelling out Groupon at the company's HQ.
Nine projection TVs spelling out Groupon at the company's HQ.

Image source: Groupon.

Let's make a deal

These are good times for Groupon shareholders. The once out-of-favor deep discounter is a dot-com darling again. The stock has moved higher in back-to-back years, and it's in positive territory in 2018 as it tries to stretch its winning steak to three years.

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Groupon's latest quarter was a mixed bag, but it's a performance that gets better on closer inspection. Revenue may have declined 8%, but the dip has been by design as it retreats out of nonprofitable markets and businesses. Backing out of some territories and selling off its Ticketfly business may be stinging top-line growth, but it's actually helping the bottom line. Groupon has now been profitable for four consecutive quarters on an adjusted basis, blowing through Wall Street income targets every single time.

Groupon's resiliency on its home North American turf and the initially well-received Groupon+ initiative paint a more flattering portrait of the company than the one implied by the orchestrated declining revenue.

The platform isn't going away. Groupon is now serving 32.5 million active North American customers, and its clean balance sheet affords it the opportunity to turn things around on its own terms. There are a lot of moving parts here, but the important takeaways are that Groupon's finding new ways to cash in on its growing Rolodex of merchants hungry for leads and that it's giving deal seekers new ways to engage with Groupon itself.

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