One of the worst performers on the S&P/ASX 200 index on Wednesday morning has been the Kogan.com Ltd (ASX: KGN) share price.
At one stage today the ecommerce company's shares were down over 6% to $5.50. They have since rebounded slightly and are currently trading 4.5% lower at $5.60.
Despite this decline, Kogan's shares are up a remarkable 30% since this time last week.
Why is the Kogan share price sinking lower?
With no news out of the company, today's decline is likely to be attributable to a broker note out of UBS this morning.
According to the note, the broker has downgraded Kogan's shares from a buy rating to neutral with an improved price target of $5.80.
The broker made the move after Kogan's shares rocketed higher following the release of its latest business update which revealed solid sales growth and the launch of two new verticals: Kogan Energy Compare and Kogan Cars.
Although UBS suspects that the risk is now to the upside for its earnings, its analysts believe this has already been priced into its shares after their strong rally.
The broker expects Kogan to achieve earnings per share of 19 cents in FY 2019 and then 23 cents in FY 2020, which prices them at 30x FY 2019 earnings and 24x FY 2020 earnings.
Is it too late to invest?
I would have to agree with UBS on Kogan. At 30x estimated forward earnings I think the company's shares are fully valued now, especially given its inconsistent performance over the last 12 months.
In light of this, I would suggest investors wait for a better entry point further down the line.
In the meantime, I would consider an investment in fellow retail shares Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL). I believe these two shares offer compelling risk/rewards at current levels.
