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Groupon (GRPN -27%) had its defenders on this dark day. Barrington praised Groupon's market...
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Tuesday, August 14, 2012, 7:02 PM ETGroupon (GRPN -27%) had its defenders on this dark day. Barrington praised Groupon's market share and brand, and estimates it trades at just a 7.1x 2012 EV/free cash flow multiple. And SA's Drew Handy is impressed with the rapid growth of Groupon's e-commerce business. Critics, meanwhile, focused not only on slowing growth, but also Groupon's people issues. Namely, that it may have too many, and is having problems managing them. (more) (transcript)
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Also, free cash flow gives you a better idea of a company's worth than earnings over the long run, though it's lumpier over the short run (especially for a company like Groupon, that has major working capital and capex changes).
The PSR has fallen like a rock and until it reaches 1.5 or less, I wouldn't touch this with a 10 foot pole. This was a pure pump and dump play and the results prove it.
FCF analysis depends upon the validity of the financial statements, a confidence I wouldn't place in this company.
Fisher ratios:
http://bit.ly/NyY1hB
It's not a company, it's a gimmick.
I think it's main benefit is it gives you a rough idea of what kind of multiple a company that isn't earning much (if anything) over the near-term could theoretically have when it becomes more profitable. Otherwise I'd focus on earnings and/or cash flow.
It does no such thing - you do not ignore the things you mentioned. You start with PSR and if it doesn't pass that screen, it is very likely not a "Super Stock" as defined by Fisher. The link I provided also addresses those other ratios that cover capex, R&D, etc. and it fails all of those tests as well.
The purpose of using PSR is to force discipline on your investing process and to stop you from buying crap like GRPN in the first place. You focus on stocks that meet the PSR criteria and then do further fundamental analysis as you suggest.
I recommend the book "Super Stocks" as it is a very worthwhile and profitable read.
Why analyze a pig when you can analyze a star?
I like Fisher, but screening for P/S without taking a close look at the business model can give a skewed understanding of a company's worth.
You think GRPN is one of those "different types of companies deserve different types of P/S ratios"?
I don't. I think its a dog.
There are literally thousands of companies worldwide that are more interesting and offer a better ROI. No reason at all to settle for a company that relies upon complex accounting methodology and revenue recognition policies to explain its business.
On August 14th, the stock closed at $5.51 and today it has rebounded from recent lows, $2.60 intraday, to just about $3.15. Amazingly on a price to sales basis it is starting to look interesting http://bit.ly/NyY1hB
http://bit.ly/HrozJW
"Graham wrote that the owner of equity stocks should regard them first and foremost as conferring part ownership of a business. With that perspective in mind, the stock owner should not be too concerned with erratic fluctuations in stock prices, since in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine (i.e. its true value will in the long run be reflected in its stock price)."