Thinking About Coupang (CPNG)? We Studied It, so You Don't Have To.

Coupang was one of the market's biggest losers today, losing 4.5% of its value and underperforming both the S&P500 and Dow Industrial composite indices by 0.0%. The large-cap Consumer Discretionary company ended the day at $15.57, but is still well above its 52 week low of $8.98 and is 26.22% below its average target price of $21.11. Over the last 12 months, Coupang is down -12.0%, and has underperformed the S&P 500 by 3.0%. The stock has an average analyst rating of buy.

Coupang does not release its trailing 12 month price to earnings (P/E) ratio because its earnings per share of $-0.05 are negative over the last year. Since P/E ratios are the stock's price divided by its earnings per share, a negative EPS number will result in a negative P/E ratio. This doesn't tell us much besides the fact that the company is not currently profitable.

Based on Coupang's positive earnings guidance of $0.57, its stock has a forward P/E ratio of 27.3. Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. In comparison, the Consumer Discretionary sector has historically had an average P/E ratio of 22.33.

Another metric for valuing 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 value of the company if it sold all its tangible assets and paid off all debts today. Coupang's P/B ratio of 11.4 indicates that the market may be overvaluing the company when compared to the average P/B ratio of the Consumer Discretionary sector, which is 3.12.

To understand Coupang's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-12-31 20,582,615 15,872,742 22.88 42.73
2021-12-31 18,406,372 15,455,244 16.03 -3.43
2020-12-31 11,967,339 9,981,159 16.6 0.79
2019-12-31 6,273,263 5,240,041 16.47 n/a
  • Average gross margins: 18.0 %
  • Coefficient of variability (lower numbers indicate more stability): 18.1 %

Next, we consider the Coupang's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:

Date Reported TotalRevenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-12-31 20,582,615 4,821,892 -0.54 93.35
2021-12-31 18,406,372 4,445,090 -8.12 -84.13
2020-12-31 11,967,339 2,513,912 -4.41 56.89
2019-12-31 6,273,263 1,675,145 -10.23 n/a
  • Average operating margins: -5.8 %
  • Coefficient of variability (lower numbers indicate more stability): 73.2 %

From the above, we can see that Coupang is not a profitable business. While unprofitable businesses may provide shareholders with attractive short term returns, more conservative investors will prefer to wait until the business can reach a profit before committing.

To get a better idea of Coupang's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenditures:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) FreeCashFlow ($ k) YoY Growth (%)
2022-12-31 565,439 -824,262 -258,823 76.13
2021-12-31 -410,578 -673,663 -1,084,241 -492.24
2020-12-31 301,554 -484,630 -183,076 65.44
2019-12-31 -311,843 -217,823 -529,666 n/a
  • Average free cash flow: $-258,823,000
  • Coefficient of variability (lower numbers indicating more stability): 79.4%

Free cash flow represents the money that Coupang can use to either reinvest in the business or to reward its investors in the form of a dividend. Since the company's most recent cash flows are negative, it comes as no surprise that investors do not get a dividend.

In conclusion, Coupang may be unattractive to investors with a low risk tolerance or a long term investment horizon. Stocks such as these may offer strong returns in the short term, but for now the long term potential of the company is not substantiated -- by the numbers, at least.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.