Groupon Inc (NASDAQ:GRPN) should remind investors why it’s dangerous to buy IPOs, especially tech ones. When a new issue arises, often times investors are blinded by the excitement that comes along with it and ignore any rational thinking.
Since listing on the NASDAQ back in 2011, Groupon’s stock has plummeted 80% and today it struggles to stay above even $5 a share.
News that the company was looking for a buyer on Monday sent the stock up more than 10%. However, just because it’s looking for a buyer doesn’t mean that it’ll find one.
There’s a reason that Groupon has struggled, with lack of sales growth being a big reason. In its most recent fiscal year, the company’s sales dropped by more than 5%, and there’s no reason to expect much of a turnaround anytime soon.
Although the company did turn a modest profit of $14 million last year, it is nowhere near enough to make up for the $195 million loss that Groupon recorded in the prior year.
With no sales growth, heavy losses in three of the past five years, there’s really not a whole lot of reason to expect investors to be lining up to buy this troubled stock.
While we may not seen Snap Inc (NYSE:SNAP) follow the same path, Groupon offers investors a good reminder as to how quickly popular tech companies can run out of favour and lose significant value in a short amount of time. Investing in IPOs is risky, and often times it’s better to wait a few quarters rather than rushing to buy on the first day.
