Is there hope for the Kogan (ASX:KGN) share price in the lead up to Christmas?

Down again today, could Kogan shares go though a Christmas recovery?

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The Kogan.com Ltd (ASX: KGN) share price has dropped again today. It fell by close to 4% today.

But with Christmas coming up, could there be a recovery over the course of December?

2021 has not been kind to Kogan shareholders. In the past month Kogan has fallen 18%. Over the course of the while 2021 it has fallen 60%.

Whilst past performance is not a reliable indicator of future performance, the last few Decembers have been positive. In December 2020, the Kogan share price went up by a mid-teen percentage. December 2019 was another positive month for Kogan shares. In December 2018, the Kogan share price increased by around 5%. December 2017 saw the Kogan share price jump around 60%.

What is the outlook for the Kogan share price?

No-one can truly know what a share price will do, but analysts and brokers can make profit forecasts, make a judgement about if it’s a buy and guess where the share price might be in 12 months from now (which is called a price target).

Some of the current price targets for Kogan shares are pretty optimistic. UBS has a price target on Kogan of $10 – almost 30% higher than where it is now. Credit Suisse’s price target is $13.88, which is almost 80% higher than today’s price. As a reminder, that’s where the analysts see the business going in a year from now.

UBS is cautious on the business as it’s not sure that Kogan can reach its $3 billion sales target and is also paying attention to the fact that Kogan is spending more on advertising which could hurt profitability.

However, whilst Credit Suisse noted weaker profitability at the earnings before interest, tax, depreciation and amortisation (EBITDA) level, the broker is seeing good levels of top line growth from Kogan.

Most recent trading update

Investors often pay close attention to the latest trading performance of a business, which can influence their thoughts on the Kogan share price.

In the first four months of FY22, Kogan’s total sales had risen by 19% against the same period in FY21. However, gross profit declined a little.

But the FY22 first quarter update showed a recovery compared to the three months to 30 June 2021 – the last quarter of FY21. Quarter on quarter, gross sales were up 23.2% to $330.5 million and gross profit was up 31.6% to $52.5 million.

Talking about the adjusted EBITDA of $9.5 million generated in the first four months, Kogan said that operating costs had been a key focus for the business, namely warehousing and marketing costs.

It has “right-sized” inventory levels since FY21 which has brought warehousing costs down. The business has also continued to “strategically invest” in marketing to expand the Kogan First paid membership base. Management are confident this will have long-term benefits for the company.

Kogan share price valuation

Looking at the estimates for FY23, UBS puts the Kogan share price at 27x estimated earnings and Credit Suisse’s projection puts it at 19x FY23’s estimated earnings.

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.

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