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Can the Kogan share price keep going?

Miniature basket of parcels sitting on laptop keyboard signifying online shopping at retailer such as Kogan
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The Kogan.com Ltd (ASX: KGN) share price has surged more than 495% from its lows in mid-March.

Despite the bullish momentum, many investors would be questioning how much further the Kogan share price can keep going. Here’s what has led to the boom in the Kogan share price and what the future looks like for the online retailer.

Lockdown fuelling Kogan’s growth

Earlier this week, Kogan provided the market with an update on the company’s performance during July 2020. As at 31 July 2020, Kogan has reported an active customer base of 2,309,000, with the online retailer adding an additional 126,00 customers in July.

Kogan reported a 110% increase in gross sales for July on a year-on-year basis. The company also saw a 130% surge in year-on-year gross profit for the period, with EBITDA for July reported at $10 million.

The continued growth in Kogan epitomises how consumer behaviour has changed during the coronavirus pandemic. With more Australians confined to their homes, online retailers have benefited from consumer spending that was originally meant for travel and other activities.

Brokers neutral on Kogan

Broker Credit Suisse recently released a note on the Kogan share price. The note highlighted Kogan’s strong trading in July, however analysts were cautious in their outlook. Analysts noted that elevated online transaction and substitutions of spending due to the COVID-19 pandemic has allowed Kogan to gain substantial market share.

However, analysts also highlighted that the Kogan share price may have peaked in the short term. They cited that the company’s trading performance in FY21 and beyond remains uncertain in terms of the investment required to drive further growth. The research note also forecasts that in the near term, Kogan will produce lower EBITDA per month in comparison to July 2020.

As a result, analysts retained a neutral rating on the Kogan share price and slapped a valuation of $19.49 on the company’s shares. Kogan’s shares closed yesterday’s trading session at $20.87.

Has the Kogan share price peaked?

In my opinion, I think that the Kogan share price may have peaked in the short term. Analysts from Credit Suisse have echoed this point by highlighting the increased costs needed to sustain growth in the near term.

However, I am also of the belief that the coronavirus pandemic has accelerated the shift to online retail. For this reason, I think that companies like Kogan have a promising long-term future. In addition, Kogan has planned for future growth with the company acquiring furniture and homewares retailer Matt Blatt in May.  

Kogan is set to announce its results for FY20 next Monday 17 August.

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Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. 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 Scott Phillips.

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