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Kogan share price up 360% since March. Is it too late to buy?

The Ltd (ASX: KGN) share price has been on a tear in recent months, rising by more than 363% since mid-March.

This strong rally was linked to a series of very positive sales updates. A surge in online shopping during the coronavirus pandemic appears to be one of the main catalysts for Kogan’s boost in sales.

With such a strong recent rise in the Kogan share price, is it still in the buy zone?

Rollercoaster ride for Kogan share price

It’s been a wild ride for the Kogan share price over the past three years. It soared from $1.67 in mid 2017 to reach $9.85 in March 2018. It then trended downward for most of 2018. The Kogan share price then took off again throughout 2019, however it only reached $7.80, still well below where it was in early 2018. The coronavirus pandemic then saw it fall back to $3.79 in mid-March. However, a remarkable rally since then sees the Kogan share price now sitting at $17.56.

Strong recent sales update

Kogan has seen a surge in online sales due to COVID-19 lockdown restrictions. In particular, there has been a much higher than normal demand for home office equipment and accessories such as PCs and laptops. In contrast, retailers with a physical store presence have suffered from a heavy decline in foot traffic. 

Kogan’s soaring growth in onlines sales is clearly evident in its most recent market update.

Gross sales grew by more than 95% during the fourth quarter of 2020, compared to the prior corresponding period. Meanwhile, gross profit grew by an incredible 115% during the same period and adjusted EBITDA grew by more than 149%. Full year FY 2020 adjusted EBITDA has grown  by more than 57%.

Is it too late to buy Kogan shares?

With a 363% rise in the Kogan share price since March, it’s now definitely looking expensive based on conventional financial metrics. Kogan’s price-to-earnings (P/E) ratio, for example, has now climbed to 92. This is well above the S&P/ASX 200 Index (INDEXASX: XJO) average of 19.76.

Despite this, the Kogan share price still remains in my buy zone. I don’t believe this high P/E ratio is too much of a concern, taking into consideration Kogan’s long-term growth prospects. I believe that Kogan is in an ideal position to leverage the rising demand for online shopping over the next decade.

Whilst the current surge in online shopping is unlikely to continue to the same extent, I feel the overall trend towards the online channel for shopping is generally set to continue. Kogan has now entrenched its market position as one of the leading local online providers. It is therefore better placed than most of its competitors to tap into this growing trend in my mind.

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Phil Harpur owns shares of ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ltd. The Motley Fool Australia has recommended 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.

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