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Groupon Stock Is a Deal — Buy GRPN Now

Groupon (GRPN) is not without drama. GRPN still is well off from its late 2011 IPO pricing at $20 per share, it had to restate earnings after fuzzy math in the Groupon accounting department, and the company ousted its founder Andrew Mason from the CEO office earlier this year.

But don’t let the past sour you on Groupon stock.

GRPN is looking good right now with a 150% rise year-to-date in 2013 on improving metrics. And though a bit frothy after another hot week, Groupon stock remains a decent buy for new money.

Here’s why:

Mobile Might: While many stocks struggle with mobile, Groupon is successfully transitioning from an email “push” of deals to a mobile-and-app “pull” of the latest GRPN deals onto users’ smartphones and tablets. The download volume for Groupon’s app is several million a quarter, on pace with other hot e-commerce providers like Amazon (AMZN) and eBay (EBAY) that use their apps as transaction platforms.

Analyst Upgrades: Stifel Nicolaus recently lifted the online deal site to “buy” from a previous “hold” recommendation, with a $16 price target. This is after Wunderlich Securities put a “buy” rating on the stock in August and a $13 target. And earlier UBS moved GRPN stock to neutral from sell, with an $11 target — up significantly from a previous outlook of just $6 a share. This significant upward revision to Groupon stock forecasts is noteworthy.

Overseas Growth: Although it’s hard for U.S. investors to imagine Europe as “local,” the local segment of Groupon on the continent is stable and the U.K. is actually seeing growth thanks to recent turnarounds in the EU. Europe operations have been a drag for many U.S. multinationals, but Groupon will start to see sustained growth there instead of headwinds now that consumers in Europe are more upbeat.

Getting Physical: Groupon appears to be chasing a direct-selling model via Groupon Goods to drive revenue by selling actual stuff, and not just coupons for services. In fact, it was growth in this segment that helped Groupon earnings meet expectations in May, and most recently the Goods segment contributed 31% of gross billings — up from 23% in the year prior. The trajectory of the Goods segment is unclear, but GRPN obviously is better for having this segment and could theoretically have a growing revenue stream on its hands.

Shorts Are Scared: GRPN boasted more than 40 million shares held short in March, or 11% of the float in Groupon stock. That has dropped pretty steadily as Groupon has risen, to just under 24 million shares short at the end of August. GRPN short interest, then, totals a mere 5% of outstanding shares now that the shorts have given up.

Now, there admittedly is a lot of froth in Groupon stock right now with a forward P/E of over 45. The bulls have made the case loud and clear for GRPN, and future earnings reports are now up against high expectations instead of the pessimism that was pervasive a year ago.

Also, tough competition in the deals space from LivingSocial and RetailMeNot (SALE) and even big players like Google (GOOG) elbowing into the space is a serious long-term threat.

But in this market, investors go bottom-fishing at their peril. Groupon has serious growth, and while we can debate whether it is overvalued, that won’t necessarily stop the stock from rising even higher.

Just take a look at Tesla Motors (TSLA) if you doubt that a stock with a 45 P/E and a barely breakeven model can win the hearts of Wall Street.

Related Reading on GRPN

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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