Investors looking for exposure to online retail stocks may want to look beyond the American markets to Coupang (NYSE:CPNG) stock.

Source: Michael Vi / Shutterstock.com

Coupang is a South Korean e-commerce firm based in Seoul. The company reaffirmed its solid growth after posting first-quarter results last month on May 12.

CPNG stock gives investors exposure to the largest online marketplace in South Korea.

Now that shares are down slightly from its post-initial public offering price, investors should look at it again.

Coupang reported net revenue growing 74% Y/Y in Q1. It now has 16 million total active customers. Gross profits rose by 70% Y/Y to $733 million. Coupang built its business around designing solutions to tackle the tradeoffs in commerce.

The firm works from a simple business question.

Chief Executive Officer and Founder Bom Suk Kim said the company’s mission is to make customers wonder “How did I ever live without Coupang.”

In the last seven years, the company invested in end-to-end integration. It has a fulfillment and logistics infrastructure giving Coupang a moat competitors will have a tough time crossing

For example, next year, it will invest on technology logistics infrastructure and fulfilment. Kim said it plans to build more than 50% of what it built over the entire history of the company in the coming year.

Investors who want to diversify away from Amazon.com (NASDAQ:AMZN) should consider Coupang for the Asian market exposure.

CPNG Stock Presents Opportunity

Although CPNG shares are in the early innings of post-IPO trade, AMZN stock is stuck in a range. The stock may struggle on profit growth for now. Gross margins are fluctuating because of its varying revenue mix.

As Coupang invests in the business, the positive momentum will accelerate. The Covid pandemic is showing signs of moderating, thanks to the global rollout of vaccines. Continued investments in areas that enhance the customer experience will drive its growth.

In Q1, Korea had 37 million online shoppers. Its site accounted for 16 million of them. Kim said that it is trying to create more contact points. That way, people will discover its services. The hope is that as users order food through apps they will try many Coupang services along the way.

Korea’s e-commerce opportunity is growing at 20% compounded annually. It trails only China as the second-fastest growing region.

Coupang’s dominance suggests that it could become the next Alibaba (NYSE:BABA). Currently, its market capitalization is around one-tenth that of Alibaba.

Costs grew because of higher operating, general and administrative activities. Coupang reported a negative EBITDA of $133 million in the quarter as a result. Investments and inventory-building led to a negative $197 million in cash flow on a 12-month trailing measure.

Fortunately, the cash conversion cycle will improve and inventory replenishment will not lag.

Fair value

Analysts have an average price target of $47, according to Tipranks. Since four of the six analysts rate the stock as a “hold,” Coupang has to prove its worth more than that.

The pros are probably waiting for the company to invest the funds raised from the IPO first. Stock-based compensation and an insider lockup expiry are headwinds.

In a discounted cash flow revenue exit model, use the revenue exit multiple to calculate terminal value after five years. Assume the following metrics:

Model courtesy of finbox

The model aggressively assumes revenue growing by over 60% this year. Growth may slow from FY 2022 through to FY 2025. Readers may assign a higher discount rate to account for unknowns. Conversely, raising the revenue multiple will lift stock’s fair value calculation.

Your Takeaway

Coupang is an undervalued stock. It is in the post-IPO phase, which will introduce near-term volatility. Strong quarterly earnings growth will win the most cautious investor. This is a stock that should perform well for investors.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.