In mid-June, when the South Korean e-commerce company was trading around $ 38, I thought Coupang (NYSE:CPNG) was goes in the right direction. But, unfortunately for anyone who bought $ 35 Initial Public Offering (IPO) shares in March, CPNG shares are now trading below the $ 30 mark.
In fact, it looks like investors have ditched CEO and founder Bom Suk Kim. If this is true, we could see CPNG stocks dropping into the $ 20 range. Down 8% in the last month alone, investors must ask: how far can Coupang stock go?
While you can’t blame anyone who bailed out Coupang, the reality is that this company has a relatively large business that is expected to generate a lot of cash flow going forward. This should pay for its expansion into other Asian countries such as Singapore and Japan.
So while it might drop before the end of 2021, I think this one has a future. For this reason, aggressive investors should consider opening their checkbooks and buying CPNG shares today.
Can CPNG shares exceed “well over $ 50”?
Live by the sword, die by the sword. That’s my motto. In April, I wrote that “CPNG stocks are one of those losing stocks that I have no problem recommending. In the 1930s, a price closer to its IPO would be ideal. Then later in June I wrote the following:
“[I]If you buy now and hold for 18-24 months I think CPNG stock will trade over $ 50 […] And if you can get some in the $ 30 range, even better. “
Well, here we are now in the highest $ 20, less than a dollar from its 52-week low of $ 28.85. So how do we get to $ 50 and up from here? Or better yet, how do you get to a market cap of $ 1.2 trillion by 2030?
I believe the markets speak for themselves. Coupang is expected to be a buy at some point in 2021. This is mainly due to the fact that it will continue to gain market share over the course of the year.
That said, the company will indeed have to work hard to expand its presence in South Korea, where it already has a significant market share. The motley fool Leo Sun recently discussed whether CPNG could be a trillion dollar business by 2030. Sun ultimately decided it would be difficult, given that Coupang is already saturated in its home market and doesn’t not many other companies to bet on at the moment.
After its public offer in March, the CPNG share closed its first day of trading at $ 49.25, up 40.7% from its IPO price of $ 35. Since then, it has been steadily declining. However, at the height of its day one hysteria, the stock hit an all-time high of $ 69. So it is more than possible that it is trading well above $ 50 at some point in the future.
The negatives are easy to see
Companion GueststorPlace donor Dana Blankenhorn recently recommended to investors sell CPNG shares. And Blankenhorn gave investors have excellent reasons to do so.
First of all – and most importantly – Coupang doesn’t have a cloud, as Blankenhorn pointed out. Instead, he uses from amazon (NASDAQ:AMZN) AWS Web Services. In January 2018, I suggested that AMZN actions could reach $ 10,000 at some point in the future. A big reason for this prediction is the profitability of AWS.
In 2019, the unit achieved an operating result of $ 9.2 billion over $ 35.03 billion in sales. That’s an operating margin of 26.3%. Additionally, in the first six months of 2021, AWS generated $ 8.4 billion operating income on $ 28.3 billion in revenue for an operating margin of 29.7%, or 340 basis points more than in 2019.
Blankenhorn is absolutely right. The lack of a cloud-based profit engine like AWS will make it difficult for Coupang to generate double-digit operating margins across the business like Amazon does. Amazon uses AWS as a bank. He withdraws money when he needs to plan his next big operation. It is priceless. Same Ali Baba (NYSE:BABA) tries to get there.
Additionally, however, (much like Amazon) Coupang faced its own human resource issues, including a fire at one of its logistics hubs in June. As Blankenhorn wrote in August, “It is bad to cut corners when registering delivery vehicles as passenger cars. Risking an employee’s life in the name of prompt delivery is worse […] Coupang management must develop a culture of patience and security.
Certainly, the company can solve the second problem by slowing down and focusing more on the employees. However, the first problem cannot be fixed without spending a lot of money – money that he doesn’t necessarily have right now.
So, if you are an aggressive investor, buying CPNG stocks in the mid-1920s seems like a great entry point. But remember, Coupang is not a South Korean version of Amazon. Not by far.
As of publication date, Will Ashworth did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.
Will Ashworth has been writing about investing full time since 2008. His publications include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the United States and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. As of this writing, Will Ashworth does not hold a position in any of the aforementioned securities.