As Groupon (GRPN) is racing to become a penny stock, analysts from major brokerages are becoming more and more bullish on the stock: "Recently stock market analysts have updated their consensus ratings on shares of Groupon, Inc. (NASDAQ:GRPN). The latest broker reports which are currently outstanding on Tuesday 12th January state 2 analysts have a rating of “strong buy”, 2 analysts “buy”, 15 analysts “neutral”, 2 analysts “sell” and 0 analysts “strong sell”. (Source: Risersandfallers.com) Most recent broker ratings 12/11/2015 – Groupon, Inc. had its “outperform” rating reiterated by analysts at Macquarie. They now have a USD 3.5 price target on the stock. 11/04/2015 – Groupon, Inc. had its “neutral” rating reiterated by analysts at UBS. They now have a USD 3.2 price target on the stock. 11/04/2015 – Groupon, Inc. had its “neutral” rating reiterated by analysts at B. Riley. They now have a USD 2.5 price target on the stock. 11/04/2015 – Groupon, Inc. had its “hold” rating reiterated by analysts at Evercore ISI. They now have a USD 3 price target on the stock. 11/04/2015 – Groupon, Inc. was downgraded to “neutral” by analysts at Sterne Agee. 11/04/2015 – Groupon, Inc. was downgraded to “market perform” by analysts at Wells Fargo. 11/04/2015 – Groupon, Inc. was downgraded to “underperform” by analysts at Bank of America Merrill Lynch. They now have a USD 2.75 price target on the stock. 11/04/2015 – Groupon, Inc. was downgraded to “neutral” by analysts at Piper Jaffray. They now have a USD 2.5 price target on the stock. 11/04/2015 – Groupon, Inc. had its “sector perform” rating reiterated by analysts at RBC Capital. They now have a USD 4 price target on the stock. 11/04/2015 – Groupon, Inc. had its “buy” rating reiterated by analysts at Brean Capital. They now have a USD 5 price target on the stock."(Source: Risersandfallers.com) Analysts seem to have forgotten that a bad business is bad at any price. I have not personally used Groupon or any similar local service for a year or so. Why? I have noticed that many small companies have become active in online marketing and offer deals. They can do without Groupon. And I do not have to waste my time going to Groupon's website to find deals - I can simply check a company's website or page on the social network and see what discounts it offers. It seems to me that as people become more and more Internet-literate, they will need services of middlemen like Groupon less and less. In the meantime, Groupon has managed to double its sales over the last three years: (Source: Google Finance) However, this has been done at the expense of profits: (Source: Google Finance) Fiscal 2015 has been stagnant - the last-twelve-month data show that it will likely deliver revenues in the neighborhood of $3.2B - $3.3B, same as during the year before. The company still generates positive free cash flows but the gap between operating cash flows and CapEx has been narrowing. As the share price falters, Groupon uses cash to buy back shares: the company has spent $37.5M to buy back stock in 2013, $147M in 2014, and over $320M in the first nine months of 2015. Unfortunately, this does not help the stock much: $GRPN, Groupon, Inc. / 1440 I have noticed something interesting in the options market for the stock. In particular, I have looked into the options expiring a year from now, in January 2017. Apparently, options investors discount the probability ща the stock going below $1 per share, while selling call options at a premium at the same time, fearing that the stock may bounce back a lot higher in the next twelve months: (Source: Google Finance. Calculations by author) As you can see, every single call option on the list is overvalued as writers have factored in unrealistic expectations about the stock's volatility in the future. My historical price analysis has showed that the annual volatility of roughly 57% is the highest figure achieved in the last three years. On contrary, bearish investors are not confident that the stock may go down even lower. As a result, readers can see that there are opportunities among the puts: both in the in-the-money and out-of-money securities. Which option strategy would you choose? Keep in mind that mathematical assumptions are only one side of the coin. If there are positive factors you can identify with the company during this year, paying a premium to the fair value of the call option may still be a good strategy. On the other hand, if you are bearish like me, put options is your best choice: not as risky as going short with the shares and, apparently, more profitable given the discounts.