Coupang (CPNG) Dips -4.7% Despite Strong Fundamentals and Growth Potential

Standing out among the Street's worst performers today is Coupang, a durable goods company whose shares slumped -4.7% to a price of $17.09, 21.06% below its average analyst target price of $21.65.

The average analyst rating for the stock is buy. CPNG lagged the S&P 500 index by -4.0% so far today.

Coupang, Inc., together with its subsidiaries 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 figures depend on discretionary income levels in its consumer base. For this reason, consumer cyclical companies have better sales and stock performance during periods of economic growth, when consumers have more of an incentive to spend their money on non-essential items.

Coupang's trailing 12 month P/E ratio is 142.4, based on its trailing EPS of $0.12. The company has a forward P/E ratio of 35.6 according to its forward EPS of $0.48 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the consumer discretionary sector has an average P/E ratio of 22.33, and the average for the S&P 500 is 15.97.

A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.

When we divide Coupang's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 0.79. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!

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 -5.8% and displayed a mean growth rate of 52.1%. These numbers show that the company may not be on the best track.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Coupang was $-258823000.0 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 $-513951500.0 and they've been growing at an average rate of 16.4%.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Coupang's P/B ratio is 11.87 -- in other words, the market value of the company exceeds its book value by a factor of more than 11, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Discretionary sector, which stands at 3.12 as of the first quarter of 2023.

Since it has an inflated P/E ratio, an elevated P/B ratio, and negative and highly variable cash flows with an upwards trend, Coupang is likely overvalued at today's prices. The company has mixed growth prospects because of an inflated PEG ratio and consistently negative margins with a positive growth rate. 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.

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.