Here's why this ASX small-cap share could be a big winner

This small business could benefit from a market rerating.

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The ASX small-cap share Kogan.com Ltd (ASX: KGN) has been chosen by the fund manager Wilson Asset Management (WAM) as a leading ASX growth share with a lot of potential.

In the past month, the Kogan share price has risen by around 40%, and in the past year, by 75%.

Most readers will probably already know that Kogan.com is an Australian online retailer. Households can get a number of other services from Kogan including different insurances, mobile plans, credit cards and energy. It also owns the online New Zealand business called Mighty Ape.

What the fund manager likes about the ASX small-cap share

WAM liked the latest business update from the company, which highlighted continued profit improvement in the first half of FY24.

The ASX small-cap share's gross profit saw growth of 42.1% to $89.5 million, thanks to an expanding share of platform-based sales.

The fund manager also pointed out that Kogan.com has been maintaining a strong financial position, with a cash balance of $83.3 million, despite using $17.2 million in the Kogan share buyback initiative.

Another positive for WAM was that the Kogan First membership saw growth to over 466,000 subscribers as at 31 December 2023, which was a 15.3% increase year over year.

The fund manager suggests that more loyal members can provide the company with an expanding recurring earnings profile going forward that "can contribute to a [Kogan] share price rerating".

What else did Kogan report?

It said its gross sales of $445.4 million reflected a decline of 5.6% year over year following "optimisations" to the quality of revenue and focus on platform-based sales, which resulted in a "significant reduction in inventories year over year". Platform-based sales for Kogan.com grew to 62.8% of gross sales, with a key contributor being the new Kogan.com advertising platform.

The ASX small-cap share's earnings before interest, tax, depreciation and amortisation (EBITDA) was $19.3 million for the FY24 first half, compared to a loss of $23 million in the FY23 first half. Earnings before interest and tax (EBIT) in HY24 are expected to show a positive $11.8 million, compared to an EBIT loss of $31.3 million in HY23.

Reporting date

The company is expecting to release its complete half-year result on 26 February 2024.

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. has positions in and has recommended Kogan.com. The Motley Fool Australia has recommended Kogan.com. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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