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Market Analysis Dividend Shares

Kogan Hails Retail Revolution as Profits Soar, but Share Price Falters

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By Ryan Clarkson-Ledward, Monday, 17 August 2020

‘There is a retail revolution taking place...’ Those were the key words of Ruslan Kogan today. The founder and CEO of Kogan.com Ltd [ASX:KGN]. An e-commerce company that has taken the local retail industry by storm...

‘There is a retail revolution taking place…’

Those were the key words of Ruslan Kogan today. The founder and CEO of Kogan.com Ltd [ASX:KGN].

An e-commerce company that has taken the local retail industry by storm. Proving that this pandemic has plenty of upside, if you know how to position for it.

Today though, we finally got a look under the hood. With Kogan releasing its final result for the full financial year.

And what a result it was…

Buying bonanza

There is no denying it, Kogan had a big year for FY20. Able to rattle off a series of impressive stat increases for the period.

The KGN share price was significantly higher than at the start of the year.

Gross sales were up 39.3% year-on-year.

Revenue was up 13.5%.

Earnings — up 57.6%.

And net profit, up 55.9%.

Suffice to say, those are some enviable figures. An impressive result considering the broader doom and gloom we’re likely to see from many other blue chip companies.

All of which has been driven by the meteoric rise of online shopping. Especially when it comes to people who haven’t previously engaged with the business, as Kogan mentions:

‘We’re seeing record numbers of first time customers, who then go on to make repeat purchases at a 40% faster pace than previously. For us this is a very exciting trend that shows that once customers learn about shopping online, they change their ongoing behaviour.

‘Once someone discovers the benefits of online shopping, I struggle to see why they would ever go back to the old way of doing things. After almost 15 years of preparation, the revolution occurring in retail represents a significant opportunity for Kogan.com.’

Those are some big insights and some big claims.

But the numbers don’t lie. Kogan really has turned a corner it seems.

Proving that e-commerce really does have more room to grow. Especially if they can maintain the momentum they’ve built.

However, that doesn’t mean there won’t be challenges either.

The market reaction to these results certainly proved that. With the KGN share price trading 4.21% lower at the time of writing.

Suggesting that perhaps investors are taking profits at what they believe is the top. Or, possibly that some were hoping for an even better result.

It’s hard to say.

Whatever the reason though, it is a surprising turn of events considering the overall result.

Which begs the question, how long can Kogan’s run go on?

Beginning of the end, or the end of the beginning?

Evaluating Kogan’s long-term prospect is no easy feat.

They are a $2.2 billion company that is still priced as a growth stock. Trading at an astounding 109.9 price to earnings ratio.

That means investors are willing to pay $109 for just $1 of Kogan’s current earnings.

Needless to say, that’s an obscene valuation. The likes of which are often reserved for high-prospect growth companies that are expected to deliver huge future earnings.

Whether or not Kogan fits into that archetype is up for debate.

It simply depends on whether you buy into their e-commerce ideal. Or if you think they’re just an overblown and overhyped digital retailer.

For what it’s worth though, I’d be leaning towards the former. Because the true value of Kogan is yet to be truly seen. A prospect that may make that ludicrous P/E ratio seem far more reasonable.

In fact, Kogan even made it onto our list of ‘high-value small-caps’. A decision that I’m sure some would firmly disagree with. But so far, they’ve proven us very right.

That’s why we encourage you to read all about their potential in our full report. Which includes Kogan, and three other ‘high-value small-cap’ picks to get you started.

Check it out right now, for free, right here.

Because if Kogan is to be believed, today’s result may just be the tip of iceberg for the real retail revolution.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

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