So far this month, we’ve seen several big-ticket IPOs. One of note has been the debut of Coupang (NYSE:CPNG) stock on the New York Stock Exchange. The e-commerce play, which has been called South Korea’s answer to Amazon (NASDAQ:AMZN), saw a massive boost in demand due to the Covid-19 pandemic.
But with the company striking while the iron is hot and going public after a banner year, should you buy in at today’s prices? It depends.
Since pricing its IPO at $35 per share on March 11, CPNG stock moved slightly higher, to around $45 per share (after pulling back from prices topping $50 per share). At these levels, Wall Street gives the company around a $76.5 billion market capitalization.
This valuation factors in heavily the company’s recent and projected future growth. Yet, while investors may see this as a potential Amazon or Alibaba (NYSE:BABA) in the making, only time will tell. With its focus now only on its home market of South Korea, growth could peter out much sooner than expected.
So, what’s the best way to play this? This could be a solid long-term opportunity, just at a more reasonable price. Let the recent enthusiasm around it settle down before giving it another look.
CPNG Stock: Another E-Commerce Winner?
Investors who missed out on the tremendous gains with e-commerce stocks may be tempted to dive into this play. But the factors that made Amazon, Alibaba, and MercadoLibre (NASDAQ:MELI) stock some of the market’s top performers may not be in play here with Coupang.
Why? For starters, tailwinds are already fully priced in. Wall Street’s currently valuing this company at $76.5 billion. Based upon the financials provided in its S-1 filing, the Korean e-commerce giant generated just over $11 billion in sales last year.
That’s a price-sales ratio of around 7x. Not the frothiest valuation out there, but clearly one that takes into account this company’s tremendous growth opportunity.
Or does it? There’s no denying that the company has room to expand in its home market of South Korea. But, as a South Korean investment strategist pointed out around the time of the IPO, there’s reason for concern.
As CNBC reported March 11, Yuanta Securities’ Daniel Yoo advised it’s still unclear whether this e-commerce upstart could eventually become a highly profitable business. Add in its dependence on grabbing an even larger piece of the South Korean e-commerce market and this stock, already “priced for perfection,” could pull back substantially if it falls short of expectations.
Can South Korea Alone Move the Needle?
As it stands now, CPNG stock today is a promising business with a fair valuation. It stands to continue gaining ground in South Korea. But it made need more than that to move the needle. Sure, its singular focus on South Korea for now could still drive tremendous gains for the stock. As a Seeking Alpha contributor broke it down recently, the company’s sales could hit $28.5 billion by 2025.
Yet, with e-commerce as a whole in South Korea growing just 5.2% per year from now until 2025 (per figures from Statista), this ambitious sales growth projection for Coupang depends highly on it grabbing substantially more market share in the coming years. Already holding a substantial 24% share there, this may be a tall order.
Admittedly, gobbling up market share at a breakneck pace (from an already high starting point) has been done before. Just ask Amazon, which grew its share of the U.S. e-commerce market from 34% to 50% within five years. Yet, with investors anticipating Coupang will continue to repeat in its home market what its better-known peer achieved stateside, there could be disappointment ahead, if the company stumbles along the way.
To put it another way, like with any hot stock, it’s a priced-for-perfection situation. At today’s valuation, investors expect everything to go off without a hitch. But what happens if there a few hiccups along the way? Any sort of disappointment could result in outsized moves lower for CPNG stock. With this in mind, taking your time looks to be the best move.
Wait for Weakness Before Buying Coupang
Unlike Amazon and Alibaba, which are more general e-commerce plays, this remains a very specific one. Basically, you’re making a bet it’ll become the dominant e-commerce player in its home market of South Korea.
Granted, this remains highly possible, as seen from Amazon pulling this off in the U.S. market. But, if this company stumbles along the way, investors could bail from the stock aggressively if underwhelmed.
Hold off on CPNG stock for now and wait for weakness before entering a long-term position.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.