Since its initial public offering (IPO), South Korean e-commerce giant Coupang (NYSE:CPNG) is wavering. CPNG stock is reacting to bullish and bearish analyst ratings. Valuations are unfavorable, too. The company priced its IPO at $35, well above the initial $27-$30 level.
Investors may only count on SoftBank’s bullishness to justify the company’s current price. Is the e-commerce growth potential enough to justify the expectations of a higher share price from here?
CPNG Stock Wavers
Since its IPO, Coupang shares cycled between $42 – $46. Analyst ratings are adding to the stock’s volatility. For example, all but one analyst initiated coverage on Coupang with a “Hold” rating, per Tipranks. Only Goldman Sachs (NYSE:GS) stood out with a “Buy” rating and a $62 price target. The average price target is $50.50.
Loaded with plenty of cash from the IPO, Coupang put the money to good use. It sought to hire senior executives in Singapore to expand its business. The hiring of management, not working-level staff, will give Coupang the leadership it needs to grow. On the other hand, adding a management layer will not pay off if the company is not increasing its headcount.
Coupang’s expansion outside of its home territory – South Korea – is another risky proposition. Singapore may have an entirely different customer base with varying purchasing patterns. Coupang may end up spending more resources but fail to grow in the region.
Softbank’s support for Coupang will give shareholders the confidence needed to accumulating shares. In South Korea, the market is small. Coupang offers same-day delivery without issue. But as a small region, growth may eventually stagnate.
Coupang’s expansion mitigates the risk of relying on South Korea alone for growth. The firm faces no competition from Chinese firms. JD.com (NASDAQ:JD) and Alibaba (NYSE:BABA) are busy protecting their domestic market share. So, Coupang only needs to sustain its competitive moat with local competitors. GMarket is one of such competitors.
Amazon.com (NASDAQ:AMZN) is no threat to Coupang. In 10 years, the firm became the top online retailer. CNBC rated the company second on the 2020 Disruptor 50 list. With that lead, Amazon will not likely catch up.
Fair Value
Of the key characteristics of a stock – dividend, health, past, future, and value – Coupang scores high on prospects. SimplyWall.st praises the company for its forecasted earnings growth of 73.6% annually. Despite the strong prospects, the site believes the stock is worth $29.00.
Coupang scores poorly on sentiment and value
In the chart above, CPNG shares do not have a good value or quality score. The low sentiment score reflects the stock’s recent drops and unconvincing rallies.
Investors seeing diversification away from e-commerce heavyweight Amazon.com may also consider Jumia Technologies (NYSE:JMIA). Markets treat the e-commerce company as the “Amazon of Africa.” Similarly, CPNG is the dominant “Amazon of South Korea.”
At current prices, CPNG is trading at a steep premium. The company has a market capitalization that is tiny compared to that of Amazon, but bigger than that of JMIA stock.
The stock chart indicates a “double bottom” at around $42, per finviz. This technical indicator suggests that the stock could rally for the short-term period. The medium-term stock price is still unknown. Investors cannot calculate a fair value until it posts quarterly results.
Your Takeaway
As a recent IPO, investors need to watch out for insider lockups putting pressure on CPNG’s stock price. Fortunately, the international expansion in the Asian region will put investor money tp work.
Cautious investors may consider Coupang’s willingness to expand outside of South Korea as a risk factor. The company is the number one e-retailer in the country but still needs to further consolidate its strength. It needs to bulk out operations by hiring more staff and mordernize its online infrastructure even more. Every edge it builds will solidify its lead in South Korea. From there, the company may scale up its business to the rest of Asia, including Singapore.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
