Is the Kogan.com Ltd (ASX: KGN) share price an opportunity after the business has suffered a significant decline?
Since the start of 2022, it's down 29%. In the past six months it's down 53%. It has fallen about 70% in 13 months.
Some businesses may not be better value just because they have fallen. Kogan has gone through a lot of negatives in the last 12 months.
It suffered from a drop in demand. That led to the business ordering too much stock. Warehousing costs jumped and Kogan also had to pay demurrage costs. To shift the excess stock, Kogan increased its marketing – more costs.
Latest update to influence the Kogan share price
At the e-commerce ASX share's annual general meeting (AGM) at the end of November 2021, it said that it had right-sized the inventory levels which has brought warehousing costs down. But it was still investing in marketing to expand the Kogan First member base and is confident this will have long-term benefits.
In the first four months of FY22 to October 2022, Kogan had generated $12.4 million of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
Kogan has given investors an update for the six months to December 2021. For the half-year, the company made $21.7 million of EBITDA. But this still represented a 58% decline from last year.
Whilst total gross sales only grew by 9.4% to $698 million, it did represent year-on-year growth. There were some highlights including 28.7% growth of Kogan Marketplace to $221.1 million, 96.7% growth of advertising to $8.1 million and 48.7% growth of Kogan Energy gross sales to $6.6 million.
Kogan.com's active customers rose 10% to 3.31 million. Kogan First members jumped 176% to 274,000.
Kogan's inventory has reduced to $196.8 million, down from $227.9 million at 30 June 2021.
Is the Kogan share price an opportunity?
UBS is 'neutral' on the business, but with a price target of $6.70. The broker suggested that Christmas/December trading wasn't as good as it was expecting. COVID impacts continue, with things like the supply chain and advertising remaining elevated.
However, Credit Suisse is still positive on the business with an 'outperform' rating and a price target of $9.16. That implies a rise of around 50% over the next year. However, higher costs did mean that the company's half-year performance wasn't as good as it was expecting. The low valuation means it's still an opportunity.
Credit Suisse puts the Kogan share price at 20x FY23's estimated earnings with a potential FY23 grossed-up dividend yield of 3.6%.
Goals and e-commerce growth
Kogan has a goal of $3 billion of gross sales by FY26, with 1 million Kogan First subscribers. If the gross sales goal is achieved, it would represent a compound annual growth rate of over 20%.
The company says that its market share of online retail is rising (which hit 2.7% in FY21) and the e-commerce market itself continues to rapidly increase in size.
