January wasn’t a good month for Coupang (NYSE:CPNG). As a result, the South Korean e-commerce company lost 29% of its value. CPNG stock has fared slightly better through the first week of February, but it has still been an up-and-down experience for shareholders.
On Jan. 24, Coupang’s share price hit a 52-week low of $16.61. In the nine days since, it is up more than 25% at $21.58. Coupang appears to have bottomed after a 56% decline over the past year.
Should investors buy now or wait for it to retest its 52-week low?
Let’s consider both options.
Buy CPNG Stock at Current Prices
I find it hard to believe that Coupang has lost so much ground since going public on Mar. 10, 2021 at $35. Yet, here we sit. It gained almost 41% on its first day of trading and it has been downhill ever since.
This is my fifth time writing about Coupang since its initial public offering (IPO). My first was in April 2021. I felt that Coupang’s backing from SoftBank (OTCMKTS:SFTBY) was a big positive for owning CPNG stock. However, at the time, it was trading in the mid-to-low $40s. Therefore, I suggested buying closer to its IPO price was the preferred entry point.
In hindsight, I know that I was way off base. It fell 61% over the next nine months to its 52-week low of $16.61.
In June, I suggested that until Coupang Chief Executive Officer and founder Bom Suk Kim delivered a bad quarter, the company was headed in the right direction. You would likely make money over the next 18 – 24 months if you bought the stock in the low $30s.
By September, my tune had changed a little. Here’s what I had to say:
“[I]f 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.”
You will notice a slight change in my wording over these three articles. I moved from recommending investors to buy its stock to aggressive investors doing so. Clearly, the market isn’t convinced that Coupang will ever become profitable. In my most recent piece in December, I continued to believe CPNG was an excellent long-term buy.
While CPNG might retest $16.60 in 2022, I am not changing my tune any further. Aggressive investors will be rewarded over the long haul.
Coupang reported its third-quarter (Q3) 2021 results in November. Excluding currency, it grew revenue 44%, more than double the growth of the e-commerce segment in Korea. It also grew active customers by 20% in the third quarter, its 15th consecutive quarter.
And, yes, it lost $207.4 million on an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis, up 17% from a year earlier. However, its gross margin increased 130 basis points to 16.2%.
Given its growth, I could see a 20% gross margin translating into net profits in the future. But, of course, we are not there yet and might not be until 2023 or later, so there is still plenty of risk here.
Wait to Retest 52-Week Low
I think it is fair to say the markets are not humming along as they did in 2021. The S&P 500 has a total return of -5.6% through Feb. 4. While the index did manage to pull off a positive gain for the week of Jan. 31 through Feb. 4, the general direction is still lower.
Until that reverses itself, an argument can be made that there is no urgency to buy CPNG at around $21, where it trades as I write this.
Of the 10 analysts who cover Coupang stock, the average rating is Overweight, but barely, with four rating it a Buy, five a Hold, and one Underweight. The median target price is $31. The consensus estimate for 2021 is a loss of 95 cents a share, up from 71 cents three months ago. The estimate for 2022 is a loss of 56 cents, up from 35 cents three months ago.
The analysts covering Coupang are conflicted. While they believe the future is bright, they also think things will worsen from a profitability perspective before they get better.
Unless you are very risk-tolerant, there is no reason to buy in the $20s. It is better to wait for it to come to you.
While I do believe Coupang is an excellent stock to buy for the long haul, it is evident that CPNG is broken right now. As a result, there is a legitimate chance that it will revisit $16.60.
If you are an aggressive investor, I think you should wait for it to fall a little further. Unfortunately, in these markets, barring some significant piece of positive news, it is not likely to take off anytime soon.
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.