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Groupon Rallies on Ratings Anticipation

Analysts and investors are gearing up for a heavy dose of good news for Groupon on Wednesday morning, in what is expected to be a day of positive research ratings for the stock.

Groupon
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Groupon

Securities rules prohibit underwriters from rating a stock until forty days after its initial public offering—meaning many of those ratings typically hit the market all at once. For Groupon , that day is Wednesday, and investors are loading up on shares in anticipation.

“There’s usually a high correlation between underwriter opinions and positive opinions on their stock. My guess is that there will be a lot of positive reports out tomorrow [for Groupon],” Wedbush Analyst Edward Woo told CNBC in an interview.

Investors piling into the stock Tuesday, which rallied 8 percent in early trading on very little company-specific news (amid a relatively flat market day), are doing so based on a rich history of ratings-related rallies, which notably included its social predecessors of LinkedIn and Pandora Media .

Both social stocks saw significant price run-ups ahead their lockup expirations earlier this year—lockups that were met with overwhelmingly positive research ratings.

For Groupon, it stands to be a critical day. Despite a recent rally, the company remains below its opening day high water mark when it rallied roughly 30 percent.

Woo, who has been rating companies for the last 5 years at Wedbush (which is not one of Groupon’s underwriters and therefore not subject to the lockup), currently has a neutral rating on the stock—citing well-known worries about its competition, industry growth, and its massive marketing costs which have drained the daily-deal site’s balance sheet.

And he’s not alone.

Of the extremely limited number of analysts that have rated the stock, all have assigned a hold, according to analysts surveyed by Thomson Reuters.

How the underwriters rate the stock Wednesday will be an interesting ratings game to watch.

When asked if he thinks the expected deluge of “BUY” ratings will be justified, Woo responded, “They’ll have their rationale on why their opinions are correct. I think I’m right, but obviously they’ll think they’re right as well. Only time will tell.”

Follow Kayla Tausche on Twitter: @kaylatausche
Follow Jesse Bergman on Twitter: @JBergmanCNBC

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