Is Kogan worth $22.00 per share?

Kogan share price continues to outperform

It’s been a breakout year for electronics retailer Kogan (KGN) – as the coronavirus pandemic has seen people stay inside their homes longer, altered their spending habits, as well as accelerated the adoption of e-commerce.

Looking at how these trends have impacted Kogan’s underlying business, in fiscal 2020 the online-focused retailer posted a robust set of results, reporting

• Gross sales of $768 million, up 39.3
• Revenue of $497 million, up 13.5%
• Earnings (EBITDA) of $46.5 million, up 54.5%
• Profits (NPAT) of $26.8 million, up 55.9%

Beyond those FY20 results, Kogan has in recent times began delivering monthly business updates – most recently reporting triple digit top and bottom-line growth in August.

Surveying this business update, the company reported that across August gross sales surged over 117% (YoY), gross profits gained more than 165% (YoY), while adjusted earnings (EBITDA) rose a staggering 466% (YoY).

'Marketing Costs reflected the largest monthly marketing investment in the history of the Company,' it was also noted.

Finally, on the customer acquisition front, Kogan recorded what was described as 'the largest monthly increase in the history of the Business' in August, adding 152,000 customers during the month -- taking the total active customer count to approximately 2.4 million.

All up and off the back of such trends, Kogan has seen its share price far outperform the market in 2020, with its share price rising 169% YTD – closing out Thursday’s session at $20.15 per share.

Is Kogan worth $22.00 per share?

Following the company’s August business update, analysts from UBS upped their price target on KGN – from $21.50 to $22.00 per share, though retained their Neutral rating, arguing that ‘we do not expect low promotional intensity to be sustainable.'

Although UBS analysts noted that Kogan is a strong business which boasts an impressive return on invested capital, has ‘superior data capabilities; and increasing earnings from high-margin / low capital alternative profit streams’ – the investment bank ultimately concluded that at current price levels, much of Kogan’s future growth is already priced into the stock.

Analysts at Credit Suisse took a similar view to UBS – upgrading their price target in the wake of the August business update, from $19.68 to $21.33 per share – but retained their Neutral rating, on the basis that much of the growth that Kogan has witnessed in recent times is already factored into the share price.

‘We maintain our view that the recent structural acceleration in online spending and elevated expenditure on household goods is reflected in the share price.’

Kogan opened modestly higher on Friday, at $20.20 per share.

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