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Stock Market Watch Starting April 2: More Groupon (GRPN) Troubles Plus Avon (AVP) Rejects A Suitor

|Includes: AVP, Groupon, Inc. (GRPN)

This week has started out with two bangs: Groupon (NASDAQ:GRPN) continues to be in the same ranks as many Chinese reverse merger stocks (along with Enron) in having persistent accounting "issues" while privately held Coty gets spurned by troubled Avon Products (NYSE:AVP) after offering a "lowball" price to buy the company.

Was Groupon (GRPN) Hatched Too Soon?

Starting with Groupon (GRPN), it's been reported that the SEC is looking into the company's revision of its financial results but the probe was still in preliminary stages and there has been no decision to launch a formal investigation.

However, Groupon (GRPN) has been dogged by accounting issues and these issues have been public knowledge since prior to its late 2011 IPO. In fact, some analysts even went so far as to call Groupon (GRPN) a giant Ponzi scheme prior to its IPO plus the company has already restated 2010 results and has abandoned an accounting method for operating income after a previous review by regulators. Then last Friday, Groupon (GRPN) reported a "material weakness" in financial controls and also stated that 4Q2011 sales were actually $492.2 million, lower by $14.3 million, than previously reported due to higher refunds to merchants.

Given these (persistent) accounting problems, some analysts are saying that perhaps Groupon (GRPN) was a company that was hatched too soon and should never have had an IPO until it got its accounting and internal controls in order. Moreover, Groupon (GRPN) is clearly growing so fast that it's having problems keeping all of its systems in order but the company has otherwise confirmed guidance for the first quarter which could mean that no further surprises should be expected - at least from the company's end.

On Monday, Groupon (GRPN) sank 16.89% to $15.27 on Monday plus the stock is now down 26% since the start of the year and is down 41% since its November debut.

Avon Products (AVP)

Meanwhile, fragrance maker Coty wants to diversify away from the fragrance business by making a bold $10 billion to buy troubled Avon Products (AVP). However, the offer was rejected and deemed opportunistic by Avon Products (AVP). Its also been noted by Bloomberg Businessweek that the offer was the lowest on record relative to earnings and sales for cosmetics company takeover

Nevertheless, Avon Products (AVP) is facing sliding sales, is in the process of replacing its CEO and is the subject of a bribery probe under the Foreign and Corrupt Practices Act for its activities in China and other emerging markets. Moreover, its unlikely that there will be more bidders as the company's legal problems will tend to scare way the private equity crowd while its direct selling model is considered to be an awkward fit for most other big consumer, health and beauty product companies.

Hence and unless Coty's makes a bigger offer, investors will likely have to wait for a new CEO to be put in place to help turn the company around along with a resolution of its legal problems.

On Monday, Avon Products (AVP) surged 17.25% to $22.70 and the stock is up 29.9% since the start of the year, down 17.3% over the past year and down 39.1% over the past five years.

What Should Investors Do With Groupon (GRPN) and Avon Products (AVP)?

Groupon (GRPN) investors obviously face another potentially volatile situation and some uncertainty as there could be more revelations about other problems in the months ahead. On the other hand, Groupon (GRPN) may just as quickly put these latest issues behind it.

Meanwhile, Avon Products (AVP) may have turned down the best option its shareholders have but perhaps Coty will up its offer or another suitor (probably unlikely) will appear. Otherwise, investors will need to be patient in the hopes that the company can turn itself around on its own.

In the mean time and if you own or trade Groupon (GRPN) or Avon Products (AVP), you may want to check out stock forecasts for them daily and have them on your my portfolio list as it looks like it will be a bumpy road ahead for both.