Furthermore, skeptics chalk Monday’s price pop to “short-covering” (buying back shares previously sold short) by traders. If a company’s stock has jumped as a result of short-covering, it is often considered a temporary blip.
Need another reason to doubt soaring shares? Groupon is about to get hit with a supply glut. The three-year-old company’s post-initial-public-offering lockup date is June 1, when about 600 million shares go on sale.
“The lockup is going to be a major overhang,” May conceded. “It’s a massive amount of stock that's coming to market; over 90 percent of the company is outstanding, so from a tech standpoint, that’s clearly going to weigh on the short term.”
Still, May says Groupon’s pending lock-up hurdle is “typical of any IPO,” not unlike those related to LinkedIn or Google's IPO back in 2004.
For May, Groupon’s performance has earned it the benefit of the doubt, and he notes that over the last four quarters, Groupon has generated $310 million in free cash flow.
“In 3 years, they have grown like a rocketship,” he said. “You gotta give the team some credit for the numbers they’re putting on the board.”
—By CNBC’s Jennifer Leigh Parker
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Mark May does not personally own Groupon shares, but Groupon is an investment banking client of his firm, Barclays Capital.
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