Coupang (NYSE:CPNG), one of the largest e-commerce companies in Asia, saw a rocky start to the year. CPNG stock dipped 22.3% per share to $22.85, because of a series of short-term disruptions that weighed on its profitability. More worryingly, since its initial public offering (IPO) in March 2021, Coupang lost over 50% of its market capitalization.
Meanwhile, the broader Korean market, measured by iShares MSCI South Korea ETF (NYSEARCA:EWY) shrank 5.6% year-to-date to $73.53 per share.
Coupang stock’s underperformance might look like an opportunity after this sharp correction, but let’s have a look at its prospects, financials and valuation metrics to try to gauge if the stock has truly bottomed out.
Coupang Is A Fast-Growing Company, But It Is Not Profitable
CPNG has an impressive growth profile. Net sales increased 48% year-on-year to $4.6 billion in the third quarter of 2021. Quarterly gross profits surged 62% YOY to $754.5 million and the quarterly gross margin grew 130 basis points to 16.2% YOY.
According to the consensus of analysts, CPNG’s rapid top-line growth should continue. Revenues are forecasted to jump by 30.7% to $24.2 billion in FY 2022 and to slightly decelerate in 2023, up 24.1% YOY to $30 billion.
On the other side, CPNG’s Q3 2021 net loss expanded by 87% year over year to $323.9 million, following sizeable investments that degraded the company’s profitability. Management announced two major investment programs to further fuel growth and to expand market share — one of approximately $340 million to assist small business owners and the other of $1.3 billion, aimed at opening new fulfillment centers throughout Korea.
With these investments, CPNG’s net loss is expected to slightly decelerate in 2022, down 32.9% YOY to $981 million and dip by 62.9% in 2023 to a net loss of $364 million.
Despite this, the e-commerce retailer had a comfortable net cash position of $3.11 billion as of the third quarter 2021, mostly received during the IPO, which should be more than enough to fuel its swift growth.
CPNG Stock Remains Expensive Compared to Peers
CPNG is not a profitable company for the moment, but it is growing at a fast pace. After losing more than 60% of its market capitalization since its listing, investors might think that CPNG’s valuation metrics are compelling. Coupang is currently trading at a price-sales ratio of 2.34x and EV-sales of 2.21x.
In the meantime, Pinduoduo (NASDAQ:PDD), a Chinese e-commerce retailer, is more pricey than CPNG, with a P/S ratio of 5.22x and EV/Sales of 3.76x. On the other hand, JD.com (NASDAQ:JD) is twice as cheap as CPNG, with a P/S of 0.89x and EV/Sales of 0.72x. The Asian e-commerce leader, Alibaba (NYSE:BABA), which posted a comparable stock performance to CPNG in the past year is slightly more expensive, exchanging at P/S of 2.67x and EV/Sales of 2.29x.
That being said and although CPNG has rebounded in the past days, this looks more like a technical recovery. I believe that selling pressure will soon be back.
Growth at All Costs Isn’t Enough for CPNG Stock
Coupang is for now focused on expanding market share. It is not expected to deliver a profit in the next two years. On the bright side, the company has a minimal amount of debt and sufficient cash. It will therefore be marginally impacted by the inflation shock and rising interest rates.
Nevertheless, downside risks might prevail on CPNG in the near term. At the beginning of 2022, we saw the unfortunate stock performance of Coupang in a risk-off environment. Investors have rushed to dump this growth stock, given that it is far from reaching the break-even point, much less profitability.
In addition, the company does not seem very well managed, following the fire in June that damaged a fulfillment center in Icheon. CPNG was insured on property losses, but no insurance recoveries were recognized, resulting in an inventory loss of $158 million.
Insider trading is another red flag for CPNG. The balance of selling and buying transactions has been to the advantage of the former in the past 12 months, with a total amount of $1.77 billion sold compared to only $13.24 million purchased. This is bad news for the performance of CPNG, indicating that insiders are not certain about the company’s forthcoming prospects.
With that being said, the short-term outlook for CPNG shares does not look bright and I think that the bottom is not in yet. While the company might continue on its downward trend, aggressive investors that believe that CPNG will surpass its expected growth projections might consider adding a long position at this price.
On the date of publication, Cristian Docan 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.
Cristian Docan, a contributor for InvestorPlace.com, has been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach in evaluating stocks for readers, focusing on momentum investing and macro-driven strategies.