The consumer cyclical sector appears to be facing the biggest headwinds recently. The sector has dropped almost 10% over the past year, suffering the effects of the pandemic. If global growth slows down dramatically after central banks’ next attempt to contain inflation, that loss could drag on for months.
Within the consumer cyclical sector, Coupang (CPNG) is among the least likely to reverse the trend after it fell almost 60% over the past year. I would be very cautious about adding shares of this company to any portfolio, as the fundamentals and outlook do not appear solid.
Thus, I am neutral on this stock.
Coupang is a South Korean e-commerce company serving Asian customers who order same-day and next-morning groceries, general goods, and more. It also operates Coupang play, a subscription-based video streaming service.
After the economic crisis triggered by the COVID-19 virus pandemic, which prompted governments to allocate massive amounts of money to support families and businesses during the emergency, another difficult time could now begin for the global economy.
Indeed, the humanitarian crisis resulting from the war in Ukraine and the sanctions the G7 have imposed on Russia to prevent aggression could hurt global growth prospects. If that happens (the probability is not negligible), the financial markets, and Coupang, can take a hit.
Q4 and Full-Year 2021 Results
Despite revenue growing more than 30% year-over-year to $4.55 billion in the fourth quarter of 2021, the income statement ended with a net loss of $0.23 per share.
The company’s efforts to improve managerial efficiencies are slow to show, as the net loss worsened to $405 million in the most recent quarter of 2021, from $83 million in the same quarter of 2020.
Adjusted EBITDA is no laughing matter either, having this deteriorated sharply over the past year from a loss of $82 million in the fourth quarter of 2020 to a loss of $285 million in the fourth quarter of 2021.
For the full 2021 year, total net revenues increased 54% year-over-year to $18.4 billion. However, both the net loss and negative EBITDA have sunk even further into the red territory to -$1.5 billion (versus -$463 million in 2020) and -$747.6 million (versus -$357.1 million in 2020).
Coupang’s Financial Position
As of December 30, 2021, total cash and cash equivalents of nearly $3.5 billion were higher than total debt of $2.1 billion, but Coupang’s return on invested capital (ROIC) is negative. So, if this situation where each investment costs more than it pays off goes on for too long, cash reserves will deteriorate and potentially lead to difficult-to-manage debt.
Coupang’s Outlook
The number of customers is increasing, but net margins are still negative. Therefore, the company is trying to improve infrastructure efficiency. The task is not easy, as Coupang operates in a competitive environment. In addition, headwinds from geopolitical tensions between nations are also being felt in Asia, which could hamper the company’s growth plans.
Wall Street’s Take
In the past three months, five Wall Street analysts have issued a 12-month price target for CPNG. The company has a Moderate Buy consensus rating based on three Buys, two Holds, and zero Sell ratings.
The average Coupang price target is $27, implying 40.3% upside potential.
CPNG Stock Statistics
Shares are now trading at $19.20 and have ranged from a low of $15.27 to a high of $50.50 over the past 52 weeks. The market cap is approximately $34 billion.
Its P/E ratio is -22, while analysts’ forecast for Q1-2022 GAAP EPS is -$0.18.
Top Fund Holders’ Trading Activities
The recent transaction of SoftBank’s (OTCPK: SFTBY) Vision Fund also makes this stock unattractive, as Coupang’s largest holder sold 50 million shares on March 9.
SoftBank’s Vision Fund realized a price of $20.87 per unit sold, SEC filings also reveal. Softbank now owns around 461.1 million shares.
This could be a signal that the stock could underperform.
Conclusion
This stock needs to improve its operating profitability, and then the stock price could recover. Nonetheless, it won’t be easy for this stock given the intense competition, while current macroeconomic conditions are not favorable for cyclical stocks, including Coupang.
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