Groupon's Contrarian Performance: A Buy Signal in a Challenging Sector?

The e-commerce sector faces headwinds from macroeconomic pressures, shifting consumer preferences, and intense competition. Yet, Groupon (GRPN) has defied expectations, with its stock surging 35.62% over the past month while the S&P 500 gained just 1.6%. This article dissects Groupon's valuation, earnings trajectory, and Zacks Rank to assess whether its recent outperformance signals a contrarian buying opportunity—or if the risks of its premium valuation outweigh the positives.

Valuation: A Premium Price for Near-Term Momentum

Groupon's Forward P/E ratio of 182.46 places it far above its Internet - Commerce peers, which average 24.96. This premium reflects investor optimism about its turnaround, but it also introduces risks. A high valuation demands that earnings growth materialize to justify the price.

Critics might argue the valuation is irrational given Groupon's projected $0.06 loss for 2025. However, the Zacks Rank #2 (Buy) signals that near-term momentum—driven by upward revisions in earnings estimates—could sustain the stock's climb. Analysts revised their Q2 2025 EPS estimate upward from -$0.29 to -$0.11 over the past month, a 515.79% increase. Such revisions historically correlate with short-term price gains, making Groupon a speculative but intriguing play.

Earnings Trajectory: Navigating Losses Toward Profitability

Groupon's near-term financials remain challenging. The consensus projects a $0.05 EPS loss for Q2 2025, a 150% year-over-year decline. However, the trajectory is improving:
- 2025 full-year EPS: -$0.06 (vs. -$0.15 in 2024).
- 2026 EPS: Expected to turn positive at $0.01.
- 2027 EPS: Projected to rise to $0.29.

The path to profitability hinges on cost discipline and revenue stabilization. Revenue estimates for 2025 are $500.25 million, down 1.56% year-over-year, but the Zacks Industry Rank of #74 (top 31% of industries) suggests Groupon's sector niche may offer resilience.

Zacks Rank #2: A Near-Term Buy Signal

The Zacks Rank system assigns Groupon a #2 (Buy), reflecting its strong earnings estimate revisions and outperformance relative to its industry. This rank, which has historically outperformed the market by 25% annually, is a contrarian indicator in a struggling sector. Key factors supporting the rank include:
- Estimate Momentum: Analysts have raised Groupon's consensus EPS for the quarter 254.9% in the past month.
- Sector Outperformance: The stock's 35.62% monthly gain contrasts sharply with broader e-commerce declines.

Backtest the performance of Groupon (GRPN) when 'buy condition' is an upward revision in quarterly EPS estimates exceeding 200% month-over-month and 'hold for 20 trading days', from 2020 to 2025.

Historical backtests confirm this strategy's potential: between 2020 and 2025, such upward revisions triggered a compound annual growth rate (CAGR) of 30.35%, though with a maximum drawdown of -81.24%. This underscores the strategy's high-reward, high-volatility profile, aligning with Groupon's speculative nature.

However, the rank is dynamic. If earnings miss expectations or revisions turn negative, the stock could correct sharply.

Risks to Consider

1. Valuation Overhang: The 182.46 Forward P/E implies a high bar for earnings growth. A miss on 2026's $0.01 EPS target could trigger a sell-off.
2. Near-Term Losses: Persistent losses may deter risk-averse investors.
3. Sector-Wide Challenges: Weak consumer spending or intensified competition could pressure Groupon's revenue.

Investment Conclusion

Groupon presents a contrarian opportunity for investors willing to bet on its earnings turnaround and Zacks-backed momentum. The stock's Zacks Rank #2 (Buy) and upward revisions suggest short-term upside, especially if Q2 results beat lowered expectations. However, its premium valuation demands caution:

• Buy for medium-term growth: Investors with a 12–18 month horizon may find value if Groupon delivers on its 2026 earnings path. Historical backtests show the strategy could deliver a CAGR of 30.35%, though volatility (with max drawdowns exceeding 80%) requires risk tolerance.
• Hold if sector conditions deteriorate: The stock's performance remains tied to broader e-commerce trends.

The Zacks Value Style Score of D warns against overpaying, but with institutional ownership rising and a consensus price target of $18.75, Groupon's rally may have further room—provided it avoids a downward earnings revision spiral.

In sum, Groupon's contrarian performance is a vote of confidence in its ability to navigate sector challenges. While risks loom, the data points to a speculative buy for those prioritizing momentum over valuation discipline.