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Kogan.com Ltd shares jump on bumper profit result: Time to buy?

The Kogan.com Ltd (ASX: KGN) share price is certainly having a strong finish to the week.

At the time of writing the online retailer’s shares are up 7% to $2.56 following the release of its full-year results.

Key highlights include:

  • Revenue of $289.5 million, up 37.1% on prior year and 20% on its prospectus forecasts.
  • Pro forma EBITDA of $13.2 million, up 230% on prior year and 91.3% on its prospectus forecasts.
  • Pro Forma NPAT of $7.2 million, up 800% on prior year and up 188% on its prospectus forecasts.
  • Pro forma earnings per share of 4.3 cents.
  • Active customer base increased 36% to 955,000.
  • Outlook: Strong start to FY 2018 showing year-on-year revenue growth 34.9% in July.

Overall I felt this was a very strong result from Kogan and was impressed with the way the company smashed its prospectus forecasts.

Management has pointed to the release of cash constraints following its IPO as a key driver of the strong result.

This allowed the business to implement strategies for investment in private label products and marketing.

As well as replenishing existing best sellers and ranges that were understocked, the company expanded its focus onto new ranges which it believes has and will continue to drive growth.

Private label revenue increased 20.8% on last year and now accounts for 52.2% of Kogan’s gross profit.

Furthermore, a better than expected return on investment on its marketing led to an increase in marketing spend as a percentage of sales. By being able to use effective and targeted marketing, the company has been able to reach more consumers.

The 36% increase in its active customer base is proof of this. Impressively, as well as increasing the customer base by 253,000, Kogan saw an increase in average gross profit per customer to $54.

Should you invest?

If it were not for the impending launch of Amazon in Australia I would have invested in Kogan a long time ago.

And while concerns over Amazon’s impact may ultimately prove unjustified, having seen its impact on similar businesses globally, I continue to believe it is best to err on the side of caution. Especially with its shares changing hands at a lofty 59x earnings.

Therefore I would suggest investors avoid an investment in Kogan and fellow retail peers Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH) today.

Instead of investing in those shares, I would suggest investors consider an investment in these fast-growing shares. I'm tipping them for big things in FY 2018.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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