In mid-June, back when the South Korean e-commerce company was trading around $38, I thought Coupang (NYSE:CPNG) was headed in the right direction. But, unfortunately for anyone who bought initial public offering (IPO) shares at $35 in March, CPNG stock is now trading below the $30 mark.
In fact, it seems as though investors have given up on CEO and founder Bom Suk Kim. If that’s true, we could see CPNG shares fall into the low $20s. Down 8% in the past month alone, investors have got to be wondering: how low can Coupang stock can go?
While you can’t blame anyone who’s bailed on Coupang, the reality is this company has a relatively wide-moat business that ought to generate plenty of cash flow in the future. That should pay for its expansion into other Asian countries such as Singapore and Japan.
So, even though it could go lower before the end of 2021, I do think this one has a future. For that reason, aggressive investors ought to consider opening their checkbooks and buying some CPNG stock today.
Can CPNG Stock Go ‘Well Over $50’?
Live by the sword, die by the sword. That’s my motto. Back in April, I wrote that, “CPNG stock is one of those money-losing stocks I don’t have a problem recommending. In the $30s, closer to its IPO price would be ideal.” Then later in June, I wrote the following:
“[I]f you buy now and hold for 18-24 months, I believe CPNG stock will be trading well over $50 […] And, if you can get some in the low $30s, even better.”
Well, here we are now in the high $20s, less than a dollar from its 52-week low of $28.85. So, how do we get to $50 and beyond from here? Or better yet, how do we get to a market capitalization of $1.2 trillion by 2030?
I believe in the markets doing the talking for themselves. Coupang is expected to be a buy at some point in 2021. This is primarily because it will continue to grab market share over the course of the year.
That said, the company will indeed have to work hard to expand its presence in South Korea, where it already has a sizeable market share. The Motley Fool’s Leo Sun recently discussed whether CPNG could be a trillion-dollar company by 2030. Sun ultimately decided it would be tough, given that Coupang is already saturated in its home market and doesn’t have many other businesses to bet on right now.
After its March public offering, CPNG stock closed its first day of trading at $49.25, up 40.7% from its $35 IPO price. Since then, it has been on a steady decline. However, at the height of its first-day hysteria, the stock hit an all-time high of $69. So, it’s more than possible for it to trade well over $50 at some point in the future.
The Negatives Are Easy to See
Fellow InvestorPlace contributor Dana Blankenhorn recently recommended that investors sell CPNG stock. And Blankenhorn gave investors some excellent reasons to do so.
First — and most importantly — Coupang doesn’t have a cloud, as Blankenhorn pointed out. Instead, it uses Amazon’s (NASDAQ:AMZN) AWS web services. In January 2018, I suggested that AMZN stock could hit $10,000 at some point in the future. A big reason for this prediction is the profitability of AWS.
In 2019, the unit had an operating income of $9.2 billion on $35.03 billion in sales. That’s an operating margin of 26.3%. What’s more, in the first six months of 2021, AWS generated $8.4 billion in operating profits on $28.3 billion in sales for a 29.7% operating margin, 340 basis points higher than in 2019.
Blankenhorn is absolutely right. Missing a cloud-based profit driver like AWS will make it difficult for Coupang to generate double-digit operating margins over the entire company like Amazon does. Amazon uses AWS like a bank. It withdraws money when it needs to plan its next big thing. That’s invaluable. Even Alibaba (NYSE:BABA) is trying to get to that point.
In addition, though, (much like Amazon) Coupang has faced its own human resources problems, including a fire at one of its logistics centers in June. As Blankenhorn wrote in August, “Cutting corners by registering delivery vehicles as private cars is bad. Risking employee lives in the name of speedy delivery is worse […] Coupang management needs to develop a culture of patience and safety.”
True, the company can solve the second problem by slowing down and focusing more on employees. However, the first problem isn’t fixable without spending a lot of money — money it doesn’t necessarily have right now.
So, if you’re an aggressive investor, buying CPNG stock in the mid-$20s seems like an excellent entry point. But remember, Coupang is not a one-for-one South Korean version of Amazon. Not by a long shot.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
