Kogan.com Ltd (ASX:KGN) lit up the market in 2017, and Aussie online retailer looked set to continue its upward trajectory in 2018 after its share price rocketed to an all-time high of $10 in mid-March, although after a recent guidance update the stock has fallen back to $5.57 today.
To put this performance into some sort of perspective: Kogan’s share price back in March 2017 was hovering around the $1.70 mark. Needless to say, Kogan had made its early investors very happy – and possibly very rich.
But more recently shares in Kogan have wobbled a little – down about 45% since the beginning of June. So what sparked the sell-off?
Despite some positive announcements coming out of the company at the beginning of June – expansion into the whitegoods market, the imminent launch of Kogan’s mobile service in New Zealand – the news that really caught the market’s attention was the planned sale of 6 million shares held by company founder and CEO Ruslan Kogan and his business partner David Shafer.
This was such a big deal because of the negative signal it sent to the market and especially after the (relatively) disappointing guidance provided for FY 2019.
Think of it this way: it should go without saying that Kogan’s founder and CEO would know more about the performance and inner workings of his company than even your most experienced market analyst. So if the font of all company knowledge thinks that the time is ripe to be cashing in, it tends to send the message to the broader investment community that the share price has peaked.
he fact that the planned sale was so widely reported in the media took some of the shine off of Kogan’s stock, and the company’s share price dropped 23% in the first two weeks of June.
According to a company announcement dated 13 June, Ruslan Kogan and David Shafer received an unsolicited bid for their parcel of shares and “reluctantly accepted the bid due to personal financial commitments”.
The announcement did go on to state that neither business partner planned to make any further trades in their personal holdings before September 2018, but by then the damage had already been done. And Kogan’s share price hasn’t recovered since – in fact, it’s hurtled even lower to $5.57 today.
The big question coming out of all of this is whether or not Kogan is overpriced. Currently Kogan’s shares trade at more than 40x earnings, while its key competitors in the home electronics – and now whitegoods – space JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) trade at about 13x earnings and 10x earnings respectively.
This would seem to indicate that Kogan is overpriced by comparison, although it could also just show that investors are increasingly losing faith in the long-term potential of traditional bricks-and-mortar retailers.
As Kogan is a pure play online retailer, it might actually be better to compare it against other companies that operate purely online.
Amongst a group of established e-retailers, Kogan looks like less of an outlier. Webjet Limited (ASX: WEB) currently trades at 42x earnings, Carsales.Com Ltd (ASX: CAR) trades at 29x earnings, and REA Group Limited (ASX: REA) trades at the highest multiple of all.
All of these companies have vastly different product offerings, but looking at their P/E ratios still goes a long way to show how investors place a hefty premium on retailers with a purely online presence. And it’s not just because these companies operate off a much lower cost base – the consumer landscape is rapidly changing and we are all doing much more of our day-to-day shopping online.
As a shareholder in Kogan myself, I must admit that it’s been disappointing watching its share price tank over the last six weeks. But realistically a correction was bound to come along at some point, and even CEOs are entitled to a little profit-taking from time to time.
In my opinion, the biggest danger to Kogan’s continued success still comes in the form of global giant Amazon, which launched its Australian operations back in December 2017. Just how significant of a threat Amazon poses probably won’t be evident until Kogan releases its second half FY18 results.
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Motley Fool contributor Rhys Brock owns shares of Kogan.com ltd and REA Group Limited. The Motley Fool Australia has recommended carsales.com Limited, Kogan.com ltd, REA Group Limited, and Webjet 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 Scott Phillips.