In my opinion the Kogan.com Ltd (ASX: KGN) share price could be a buy.
Since 21 February 2020 the Kogan.com share price has fallen by 22%. Since 17 January 2020 it's down 48%.
The coronavirus is causing the market to be fearful. But I'm thinking Kogan.com shares could be a good buy because of a few key reasons:
Valuation
The most important thing for deciding investment returns is the price you pay. Kogan.com's share price now looks cheap. FY20's earnings will definitely be affected. Perhaps even FY21 profit will be hurt. But looking at an earnings projection for FY22, it's trading at just 15x FY22's estimated earnings.
That looks like good value to me, particularly when you consider that the FY22's projected grossed-up dividend yield is 7.4%.
It's hard to find ASX shares with compelling network effects and a wide product range that are as cheap Kogan.com.
China is getting back to work
In Kogan.com's outlook the online retailer said that due to the coronavirus outbreak there was a risk that closures or delays of orders from international suppliers and manufacturers of products which could impact the second half FY20 earnings.
However, the number of infections in China has almost completely dropped off and people are getting back to work. Whilst there may have been a short-term hit to Kogan.com's earnings, it seems as though the delay with the supply chains won't be as long as expected.
Its profit margins and balance sheet are in good shape
Despite a 5% fall of revenue in the half-year result, its gross profit increased by 10.6% and its net profit rose by 20.8%.
At 31 December 2019 it finished with $34.1 million of cash. Considering Kogan.com's size, this is a decent war chest to get it through the next six or so months.
Don't forget, online retail may see a large rise if more people are ordering online rather than buying from a physical store. Kogan.com could be a beneficiary.
Foolish takeaway
On top of the above points, there has also been some share buying by Kogan.com leadership. I think it looks good value for a three-year or more outlook. I'd be happy to buy some shares today.
