Standing out among the Street's worst performers today is Coupang, a internet retail company whose shares slumped -5.8% to a price of $18.03, 24.43% below its average analyst target price of $23.86. The average analyst rating for the stock is buy.CPNG lagged the S&P 500 index by -5.4% so far today and by -17.3% over the last year, returning -32.0%.
Coupang, Inc. owns and operates in e-commerce business through its mobile applications and Internet websites primarily in South Korea. The company is a consumer cyclical company, whose sales and revenues correlate with periods of economic expansion and contraction. The reason behind this is that when the economy is growing, the average consumer has more money to spend on the discretionary (non necessary) products that cyclical consumer companies tend to offer. Consumer cyclical stocks may offer more growth potential than non-cyclical or defensive stocks, but at the expense of higher volatility.
Coupang does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (Eps) values of $-0.02 and $-0.83. We can see that CPNG has a forward P/E ratio of -901.5 and a trailing P/E ratio of -21.7. As of the third quarter of 2022, the average Price to Earnings (P/E) ratio for US consumer cyclical companies is 24.11, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
One limitation P/E ratios is that they don't tell us to what extent future growth expectations are priced into Coupang market valuation. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. On the other hand, it's possible for companies with high P/E ratios to be fairly valued in terms of their growth expectations.
Dividing Coupang's P/E ratio by its projected 5 year earnings growth rate gives us its Price to Earnings Growth (PEG) ratio of -1.4. Since it's negative, either the company's current P/E ratio or its growth rate is negative -- neither of which is a good sign.
To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, Coupang's operating margins have averaged -11.8% and displayed a mean growth rate of 22.5%. These numbers show that the company may not be on the best track.
Companies have many costs that arise independently from their core business: cost of maintaining debt, rent payments, capital expenditures, depreciation, etc. When all of these separate cash flows are taken into account, we are left with the company's free cash flow, which for Coupang was $-1,084,241,000.00 as of its last annual report.
Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In CPNG's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-646,212,250.00 and they've been growing at an average rate of -131.3%.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Coupang's P/B ratio is 14.7 -- in other words, the market value of the company exceeds its book value by a factor of more than 14, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Cyclical sector, which stands at 3.11 as of the third quarter of 2022.
Since it has a negative P/E ratio, an elevated P/B ratio, and an irregular stream of negative cash flows with a downwards trend, Coupang is likely overvalued at today's prices. The company has poor growth indicators because of a negative PEG ratio and negative operating margins with high variability. We hope you enjoyed this overview of CPNG's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
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