Why this broker thinks the Kogan (ASX:KGN) share price is a solid long-term buy

Is it time to buy Kogan shares?

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It certainly has been an eventful 12 months for the Kogan.com Ltd (ASX: KGN) share price.

After hitting a record high of $25.57 in October last year, the ecommerce company’s shares are now trading at $10.15.

That’s a decline of 60% for the Kogan share price from its high.

What happened to the Kogan share price?

The weakness in the Kogan share price has been driven by the company’s well-documented inventory issues.

This was caused by management’s failure to predict a reduction in demand from consumers after bricks and mortar stores reopened, which led to Kogan having a backlog in inventory that it couldn’t shift.

While this is bitterly disappointing, one leading broker believes it is worth sticking with the company.

According to a recent note out of Credit Suisse, its analysts have an outperform rating and $14.06 price target on the company’s shares.

Based on the current Kogan share price, this implies potential upside of 38% over the next 12 months.

What did the broker say?

Credit Suisse notes that Kogan’s decision to suspend its dividend to conserve cash in FY 2021 surprised the market and weighed on investor sentiment. And while it isn’t expecting its dividend to be reinstated this year, it doesn’t believe investors should let this stop them from investing.

This is because Credit Suisse remains very positive on the company’s long term prospects. This is due to the structural shift to online shopping and its private label product offering. The latter is expected to be a key driver of growth in the future.

And while its analysts suspect that the first half of FY 2022 could be tough, particularly given the uncertainty of how long its elevated cost base will normalise, it is expecting business as usual again in FY 2023.

This is expected to lead to earnings per share of approximately 41 cents. Which based on the current Kogan share price, means it is trading at 25x estimated FY 2023 earnings. Credit Suisse feels this makes it a good option for investors given its positive long term outlook.

Overall, the last 12 months may have been disappointing but this broker suspects the next 12 could be far better.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of and 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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