The Kogan (ASX:KGN) share price has halved in 2021

The former market darling is not having a great time of it in 2021. Let’s take a look at what’s been driving the company’s shares lower.

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The Kogan.com Ltd (ASX: KGN) share price has more than halved in 2021. Shares in the company opened the year at around $19.42. At the time of writing, Kogan shares are trading at just over 50% of this level at $9.85.  

Last year, Kogan was a market darling as the COVID-19 pandemic forced consumers to flock online. As a result, shares in the online retailer surged to all-time highs of around $25 per share by October 2020.

So why has the Kogan share price fallen from grace?

Kogan cites growing pains in recent update

In its most recent market update, Kogan highlighted how the company has struggled to keep up with demand.

In a trading update released to the market last Friday, Kogan informed shareholders it had revised its earnings predictions for the current financial year. The company cited a number of operational and logistical challenges as reasons for the revised guidance.

As a result, Kogan warned investors that earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to come in at between $58 million and $63 million for the financial year.

The revised guidance was between $7 million and $12 million below consensus forecasts of around $70 million in EBITDA. In response, investors dumped their holdings, sending the Kogan share price plummeting to a 52-week low.

What else has caused the Kogan share price to plunge?

In 2021, the initial catalyst that sent Kogan shares nosediving can be traced back to late January. Following the release of a business update for the first half of FY21, Kogan reported a slower rate of growth than expected. Even then, Kogan cited warehouse capacity and logistical issues for the result.

The second catalyst prompting investors to sell their Kogan shares was the company’s first-half report. For the six months ended 31 December, Kogan reported a 97.4% increase in gross sales to $638.2 million and an 88.6% jump in revenue to $414 million. Despite the seemingly strong results, investors remained largely unimpressed.

Outlook

Arguably, Kogan’s inventory issues are being exacerbated by its aggressive expansion strategy. Company management noted in its Friday update that the business practically doubled in size during the first half of FY21 following a surge in consumer demand. As a result, Kogan has had to rapidly expand its inventory resulting in excess stock and increasing warehouse costs. However, the company also noted that it has learnt valuable lessons on how to better scale operations.

But investors may not be as convinced. According to the most recent data from ASIC, Kogan shares are among the most shorted on the ASX with a 10.1% short interest.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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