Value Analysis of Coupang Every Investor Should Read

Durable Goods company Coupang is standing out today, surging to $15.02 and marking a 3.8% change. In comparison the S&P 500 moved only -0.0%. CPNG is -26.47% below its average analyst target price of $20.42, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Coupang has underperfomed the S&P 500 by 27.8%, moving -6.3%.

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 62.6, based on its trailing EPS of $0.24. The company has a forward P/E ratio of 35.8 according to its forward EPS of $0.42 -- which is an estimate of what its earnings will look like in the next quarter.

As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US consumer discretionary companies is 22.96, 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.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide Coupang's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.64. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing CPNG's growth potential .

Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Coupang's last four annual reports, we are able to obtain the following rundown of its free cash flow:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 2,623,169 783,461 1,839,708 810.8
2022 565,439 824,262 -258,823 76.13
2021 -410,578 673,663 -1,084,241 -492.24
2020 301,554 484,630 -183,076
  • Average free cash flow: $78.39 Million
  • Average free cash flown growth rate: 57.5 %
  • Coefficient of variability (the lower the better): 662.08 %

Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, CPNG is in a position to do either -- which can encourage more investors to place their capital in the company.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by 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 indicates that the market value of the company exceeds its book value by a factor of 9, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Discretionary sector, which stands at 4.24 as of the first quarter of 2023.

Coupang is by most measures fairly valued because it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and positive cash flows with an upwards trend. The stock has poor growth indicators because it has a an inflated PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of CPNG's fundamentals.

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.