CPNG Stock Drops 3.1% – Assessing Proximity to Intrinsic Value

Specialty Retail company Coupang is taking Wall Street by surprise today, falling to $21.82 and marking a -3.1% change compared to the S&P 500, which moved -0.0%. CPNG is -17.11% below its average analyst target price of $26.33, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Coupang shares have outstripped the S&P 500 by 17.7%, with a price change of 41.0%.

Coupang, Inc., together with its subsidiaries owns and operates retail 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 31.2, based on its trailing EPS of $0.7. The company has a forward P/E ratio of 35.8 according to its forward EPS of $0.61 -- which is an estimate of what its earnings will look like in the next quarter. As of the second quarter of 2024, the average Price to Earnings (P/E) ratio for US consumer discretionary companies is 22.06, and the S&P 500 has an average of 27.65. 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.

To better understand CPNG’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.

Coupang’s PEG is 247.59, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Coupang's free cash flow, which was $1.76 Billion as of its most recent annual report. This 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 its strong cash flows, CPNG is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 55.6% and has on average been $57.23 Million.

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 9.61 -- in other words, the market value of the company exceeds its book value by a factor of more than 9, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Discretionary sector, which stands at 3.18 as of the second quarter of 2024.

Coupang is likely fairly valued at today's prices 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 mixed growth prospects because of its weak operating margins with a positive growth rate, and an inflated PEG ratio. We hope this preliminary analysis will encourage you to do your own research into CPNG's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.

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.