Analysts give their verdict on the Kogan (ASX:KGN) share price

Kogan shares have fallen to a new 52-week low on Friday. Are they a buy?

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Key points

  • Kogan share price hit a new 52-week low on Friday
  • In response to its half year update, brokers have slashed their valuations
  • Kogan fell well short of expectations again during the half

The Kogan.com Ltd (ASX: KGN) share price has come under further pressure on Friday.

At one stage today, the ecommerce company’s shares dropped over 2% to a 52-week low of $6.02.

When the Kogan share price hit that level, it was down a whopping 72% from its 52-week high.

Why is the Kogan share price falling again?

Investors have been selling down the Kogan share price today after brokers gave their verdict on its half year trading update.

In case you missed it, Kogan disappointed the market again on Thursday when it revealed a big reduction in its earnings and a soft sales result which was boosted by an acquisition.

According to the release, Kogan achieved a 9% lift in first half gross sales during the first half. However, it is worth noting that the Kogan business reported a sales decline of 2.6% to $602.4 million, which was offset by the inclusion of the Mighty Ape business for six months compared to just one month a year earlier.

Mighty Ape reported gross sales of $95.6 million compared to its one-month contribution of $19.9 million in the first half of FY 2021.

But things got worse the further down the income statement you travelled as the true costs of generating those sales emerged.

Kogan reported a massive 58% decline in EBITDA to $21.7 million during the half. And once again, the six-month inclusion of the Mighty Ape business helped disguise the deterioration in the performance of the core Kogan brand.

Mighty Ape added $7.1 million to EBITDA for the six months, compared to $2.9 million for one month in the first half of FY 2021. Whereas the Kogan business reported a 70.1% reduction in EBITDA to $14.6 million.

Management blamed this on continuing supply chain interruptions, fluctuations in demand, higher logistic costs, and increased investment in marketing to grow its platform and scale the Kogan First loyalty program.

Broker reaction

The team at Credit Suisse wasn’t impressed with the half, with Kogan missing its earnings estimates by a significant margin. And while its analysts have retained their outperform rating, they have taken an axe to their price target and cut it by 34% to $9.16.

It was a similar story over at UBS. Its analysts were disappointed with its performance and appear concerned that higher operating costs could hold back its earnings recovery. Particularly given industry feedback pointing to higher digital marketing, warehousing, and logistic costs.

In light of this, the broker has retained its neutral rating and slashed its price target by 33% to $6.70.

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 and has recommended Kogan.com ltd. The Motley Fool Australia owns 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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