Why the Kogan (ASX:KGN) share price could be a top buy

Kogan shares could be worth considering after its latest update.

| More on:
ecommerce asx shares represented by woman shopping online

Image source: Getty Images

The Kogan.com Ltd (ASX: KGN) share price might be worth a look after the company’s latest update.

Kogan is one of Australia’s largest e-commerce retailers, and now also includes the New Zealand Mighty Ape business.

Here are some reasons why Kogan shares could be worth considering:

Return to growth

Earlier in the 2021 calendar year, the business was experiencing a drop off of demand.

However, in the three months to September 2021, Kogan reported that its gross sales were 21.1% higher than the prior corresponding period. Quarter on quarter, gross sales were 23.2% higher to $330.5 million.

Within the gross sales, the company said that Kogan Marketplace gross sales rose by 68.8% quarter on quarter to $110.4 million.

The performance of gross profit was more varied. The gross profit of $52.5 million declined 1.7% year on year, but it was an increase of 31.6% quarter on quarter.

Customer base still increasing strongly

Customers are the driver of more demand for products and services. This is what drives the network effects and can be a help for growing profit, as well as helping the long-term direction of the Kogan share price.

Kogan.com saw active customers increase 30.7% year on year to 3.35 million. Meanwhile, Mighty Ape had 748,000 active customers at 30 September 2021.

The ASX tech share also has a membership service called Kogan First. The number of Kogan First members grew by 171.1% year on year and 64.4% quarter on quarter to 197,000. At the date of the announcement, it had grown to over 210,000 members.

Kogan said that in the first quarter of FY22, it was focused on scaling Kogan First (and Kogan Marketplace).

Continuing to improve

Whilst the second half of FY21 was difficult, Kogan is continuing to work on various parts of its business to capture the large e-commerce opportunity.

Kogan said that it has been trying to improve its logistics and customer service, whilst also driving synergies with the integration of Mighty Ape.

Management said that the company has finally resolved the previous inventory pressures, whilst also closing a number of inefficient overflow warehouses. This reduction in inventory levels led to the company significantly reducing its warehousing costs, delivering an average variable cost saving $0.8 million per month in the first quarter of FY22, compared to the last quarter of FY21.

Inventory reduced from $227.9 million (comprising $191.8 million in the warehouse and $36.1 million in transit) at 30 June 2021, to $194.3 million (comprising $154.2 million in the warehouse and $40.1 million in transit) as at 30 September 2021.

Whilst adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $10.8 million was a decline of 57% year on year, it was a 240.7% increase quarter on quarter.

What is the Kogan share price valuation?

According to Commsec, the Kogan share price is valued at around 27x FY23’s estimated earnings.

Should you invest $1,000 in Kogan right now?

Before you consider Kogan, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Kogan wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Tristan Harrison 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.

More on Growth Shares