Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Pullback in Coupang Presents an Opportunity

Stock MarketsSep 27, 2021 05:00PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Pullback in Coupang Presents an Opportunity

Coupang (CPNG) is an e-commerce company. The company sells apparel, electronics, footwear, food products, furniture, nutritional supplements, and other products, mostly in South Korea.

Coupang is often referred to as "the Amazon (NASDAQ:AMZN) of South Korea," however it also has its own unique features. Due to the population density of South Korea, and the logistical operations that Coupang has developed, over 95% of items are delivered the following day.

The company claims that 70% of its customers actually live within 10 miles of a logistics center. This could prove to be conducive to higher retail margins than Amazon, which must deliver across vast distances.

I am neutral on CPNG stock. (See CPNG stock charts on TipRanks)

Opportunities for Expansion

Coupang is backed by SoftBank (SFTBF), which has extensive ties to Japan.

Given the constraints of operating only in South Korea, the Japanese market would be a dream expansion opportunity for Coupang. That's not to say that South Korea is undesirable. The country has a very tech-savvy culture, and the ecommerce market is strong and growing each year.

However, the market in Japan is several times larger, albeit with more competition. With Softbank (OTC:SFTBY)'s backing, Coupang has entered Malaysia, Singapore, and now Japan.

Massive Revenue Growth

Coupang is in high-growth mode with revenues increasing 72.7% for the first six months of 2021 as compared to 2020. This is impressive, especially since the COVID-19 pandemic pushed e-commerce sales higher in spring of 2020.

According to the company, Q2 2021 was the 15th consecutive quarter where sales increased 50% over the same period in the prior year.

As a retail company, Coupang has high costs of goods sold. For this reason, ii is helpful for investors to focus on growth in gross profit, and then examine the income statement down from there.

Gross profit was up 50% in Q2 2021 compared to Q2 of 2021. However, the company experienced a massive warehouse fire during Q2 2021. This reduced gross profit by $158 million due to the inventory lost. Were it not for the one-time item, gross profit would have increased a robust 86% for the same period.

Significant Risks

The company is not yet net profitable, and likely will not be for several years as it scales operations. One issue that will need to be addressed is the rapid increase in general and administrative expenses.

These increased 119% year-over-year in Q2 compared. Because of this, the company's net loss has grown larger despite the revenue and gross profit gains.

The Japanese market has serious competition already entrenched within, including Amazon, and it will be difficult for Coupang to makes serious inroads there.

Further, there have been reported issues with Coupang's labor practices. Obviously, for a consumer driven company, it cannot afford to have a damaged reputation.

Stock Pullback May Make for Attractive Entry Point

CPNG stock has traded as high as $69 after its early 2021 IPO. Since that time it has been in a steady downtrend.

At the writing of this article it trades below $29. It is difficult to predict when this downtrend will end, and the dip under $30 may be a buying opportunity, albeit with caution indicated.

It may take a catalyst, such as expansion announcement, increased guidance, or an earnings beat to trigger a reversal. Coupang is estimated to release Q3 earnings in early November 2021.

Wall Street's Take

Wall Street analysts are quite bullish on CPNG stock, with a Strong Buy consensus rating, based on three Buy ratings, and one Hold.

The average CPNG price target is $43.33. This implies 53.3% upside potential from current levels of trading. Analysts are fairly aligned in their targets, with $46 per share as the high price target, and $40 per share as the low target.

Summary

There is much to be positive about with Coupang. Revenue growth and expansion are two examples of this. Gross profit is also growing even faster than revenue which is great news for margins.

The flip side is that the company's net loss is widening, and the stock price is in a persistent downward trend. Coupang is a stock to watch, and perhaps nibble at incrementally, however the company must show positive trends in Q3 earnings to warrant a bullish call.

Disclosure: At the time of publication, Bradley Guichard had a position in CPNG.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Pullback in Coupang Presents an Opportunity
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email