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Kogan.com Ltd shares drop lower on trading update

It rarely has been the case over the last 12 months, but the Kogan.com Ltd (ASX: KGN) share price has been amongst the worst performers on the market on Monday.

In afternoon trade the fast-growing e-commerce company’s shares have dropped 4% lower to $6.52.

Why are Kogan’s shares lower?

Today’s decline is attributable to a quarterly cash flow statement and trading update released before the market opened this morning.

According to the release, the company ended the second-quarter of FY 2018 with cash of $28.2 million, compared to $25.8 million at the end of the previous quarter.

This was largely the result of another strong increase in revenue over the last three months.

At its annual general meeting management advised that year-on-year its revenue growth stood at 36.2% and EBITDA growth was 58.3% higher as of the end of October. Pleasingly, this morning management has advised that its growth has accelerated during November and December.

This ultimately led to a net operating cash flow of $4.2 million for the quarter despite a heavy investment in inventory in the build-up to Christmas.

Unfortunately, though, the company has not given anything away when it comes to margins, which could partly be the reason for today’s decline. Considering the sky-high multiple that Kogan’s shares trade at, investors will want to know that earnings are growing at an acceptable (and strong) rate.

Looking through the cash flow statement I do think there are signs of margin expansion, however this will not be known for sure until the release of its half-year results in February.

In light of this and the significant growth being built into its share price today, I think it would be prudent to wait for that release before making an investment.

In the meantime, retail shares such as Lovisa Holdings Ltd (ASX: LOV), Premier Investments Limited (ASX: PMV), and Noni B Limited (ASX: NBL) could be worth a look.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended Kogan.com ltd. 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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