Why It’s Too Early to Buy Coupang Stock

Coupang (NYSE:CPNG), South Korea’s leading e-commerce company, has multiple, strong, positive catalysts. Yet it also has meaningful threats, a relatively high valuation, and low profitability. Given this mix, I suggest that, before taking a bullish position in the name,  investors either wait for one or more of the company’s potential, positive catalysts to materialize or for CPNG stock to  fall meaningfully below its current levels.

A close-up shot of a Coupang (CPNG) delivery vehicle.
Source: Ki young / Shutterstock.com

Coupang can greatly increase its market share in South Korea, obtain much more revenue from its e-commerce,  logistics and food-delivery businesses, and successfully enter the Southeast Asian e-commerce market. But the company could also be hurt by tougher competition in its home market and by investors’ concerns about its low profitability and relatively high valuation.

Potential Bullish Catalysts

Coupang is the leading e-commerce website in South Korea, but only about 29% of the nation’s population currently use the website.  Therefore, as e-commerce inevitably becomes much more popular in the highly advanced nation and as the company adds more perks for those who join its WOW service,  Coupang can greatly increase its customer base and top line.

Meanwhile, its restaurant and one-day grocery-delivery business can really become much more popular in the Asian nation. On another front, Coupang may bring in a great deal of high-margin revenue by charging other companies to utilize its extensive and hard-to-duplicate logistics network. in South Korea

Finally, I believe that Coupang could either successfully enter the lucrative, highly fractured  Southeast Asian e-commerce market or successfully purchase a controlling stake in another company that does so, as Alibaba (NYSE:BABA) has done. Coupang’s home market is geographically and culturally close to Southeast Asia, and the firm, in all likelihood, has enough resources to invest a great deal in marketing an e-commerce website focused on the  Southeast Asian market.

Potential Threats

Coupang’s gross margins have historically only been about 16%, versus Amazon’s nearly 40%. On a positive note, the Korean e-commerce operator generated “a positive cash flow from operating activities of $301 million in 2020.” But its relatively low gross margin could alienate many investors at a time when many of them are becoming more worried about finding stocks that deliver good value.

Potentially adding to that issue, CPNG stock has a trailing price-sales ratio of 6.3, which is relatively high for a company that’s not producing revolutionary technology and/or huge profits.

Additionally, foreign companies, including Alibaba, Amazon, another Chinese e-commerce giant, JD.com (NASDAQ:JD), and even Southeast Asian player Shopee could very well enter the South Korean market, harming Coupang’s top and bottom lines. If that occurs, CPNG stock is likely to take a sizeable hit.

Goldman Sachs Is Upbeat on CPNG Stock

On April 5, Goldman Sachs initiated coverage of Coupang with a $62 price target and a “buy.” The venerable firm said that the e-commerce company “has a substantial moat” due to its “nationwide in-house logistics and delivery network in {South} Korea.” Goldman is also generally upbeat on the e-commerce opportunity in South Korea.

 The Bottom Line on CPNG Stock

Coupang can greatly expand its e-commerce and food delivery businesses in South Korea, monetize its logistics network there, and enter the expansive Southeast Asia e-commerce market.

Still, the company could encounter stepped-up competition in its home market, its low gross margin may start to worry investors, and its valuation is far from cheap. Given these points,  before taking a bullish position i9n the name, I would wait until the shares either drop to $35 or the company starts to deliver on some of its potential, positive catalysts, causing “animal spirits” to be unleashed that will drive the shares much higher.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.


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