The Kogan.com Ltd (ASX: KGN) share price has been on an amazing journey over the past six months. It has risen around 250%. Can it go even higher?
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What is Kogan.com?
Kogan.com is an e-commerce business where customers can access various retail and services businesses through a single website. There are plenty of different Kogan divisions that customers can decide to buy something from. Those segments include: Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Travel, Kogan Money, Kogan Cars and Kogan Energy. It also owns and operates the online stores of Dick Smith and Matt Blatt.
A key focus of Kogan.com is to provide products and services at a low cost for customers.
What has been happening recently?
It was only a couple of months ago that the online business reported a very impressive FY20 result.
The Kogan share price has risen around 20% since reporting that FY20 gross sales went up 39.3% to $768.9 million. This drove gross profit higher by 39.6% to $126.5 million. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 57.6% to $49.7 million and net profit after tax (NPAT) went up 55.9% to $26.8 million.
Growth was faster in the second half when COVID-19 was actually impacting Aussies. In the last six months of FY20, gross sales, gross profit and adjusted EBITDA went up by 62.5%, 68.3% and 74.1% respectively.
Perhaps the most important statistic was that Kogan.com's active customer base grew 35.7% to 2,183,000. New customers can turn into long-term repeat customers, if people liked the experience.
Kogan.com has been giving the market monthly updates since the end of FY20.
In July 2020 it generated gross sales growth of 110%, gross profit growth of more than 160% and it made more than $10 million of adjusted EBITDA. Kogan added another 126,000 of active customers over the month.
In August 2020 Kogan grew gross sales by 117%, gross profit went up 165% and adjusted EBITDA soared 466%. It also added another 152,000 active customers – the largest monthly increase in the company's history.
Not only is it generating strong growth, but it also has a great balance sheet with a large pile of cash.
Is the Kogan.com share price a buy?
Businesses that are generating strong growth are definitely worth taking notice of. If Kogan.com can continue to generate higher gross sales from its growing customer base then it can become a much bigger business. The longer someone stays with Kogan and makes additional orders, the more profitable that customer can become for Kogan.
A key thing for the Kogan.com share price and earnings will be whether it can get more of these active customers to use some of the extra services. That would make a customer much more valuable to Kogan and hopefully lead to even higher profit margins.
Many of the ASX's hottest smaller shares have been rising over the previous months. Some managed to impress the market and go even higher when they gave a first quarter update, like Redbubble Ltd (ASX: RBL). However, others such as Temple & Webster Group Ltd (ASX: TPW) and Megaport Ltd (ASX: MP1) fell heavily in reaction to their first quarter update.
For what it's worth, I don't think the Kogan.com share price will react that strongly either way because investors have been getting monthly updates from the company. We just don't know the September figures.
At the current Kogan.com value, it's trading at 40x FY23's estimated earnings. It's certainly not cheap right now. But I think investors need to keep in mind two things. First, the shift to online shopping may well be permanent. COVID-19 has brought forward adoption of e-commerce. I don't think these strong sales are a once-off.
Second, interest rates are extremely low and are expected to stay low for a long time. This somewhat justifies the higher price for businesses generating growth.
I think Kogan.com could be a good long-term buy today, but I expect plenty of volatility over the next year or two. This could present further buying opportunities.
