The Kogan.com Ltd (ASX: KGN) share price is up 4% so far in trading today to $1.56, still a long way below its IPO price of $1.80.
In its latest quarterly results, the online consumer electronics retailer reported that it was beating expectations on:
- Revenues by more than 10%
- Gross profit by more than 20% and
- Pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) by more than 30%
Kogan ended the first quarter of the 2017 financial year (FY17) with cash of $31.7 million.
Founder and CEO Ruslan Kogan says the company was pleased with the performance.
"We believe Kogan.com is well placed to increase inventory levels next quarter to capitalise on the Christmas trading period."
In August, Kogan beat most of its prospectus forecasts for revenues, profit, margins, EBITDA and net profit for FY16, but didn't update its forecast for FY17.
In the prospectus, Kogan was expecting revenues of $241.2 million, EBITDA of $6.9 million and a net profit after tax of $2.5 million. In FY16 those figures were $211.2 million, $4 million and $0.8 million respectively.
On that basis, Kogan's share price is hugely expensive. That's a P/E ratio of 58.2x. By comparison, the company's chief rival JB Hi-Fi Limited (ASX: JBH) trades on a P/E ratio of 21.7x. Harvey Norman Holdings Limited (ASX: HVN) sports a P/E of 16.8x.
Now Kogan may be growing faster than its two competitors, and without any bricks and mortar stores should be able to keep its cost of doing business (CODB) much lower. There's no rent, distribution or excess sales staff costs for Kogan.
However, the lack of physical stores could be a hindrance to Kogan delivering strong growth, since it also has to compete with thousands of online-only retailers who also have the same advantages over traditional bricks-and-mortar retailers.
Should Amazon.com ramp up its efforts in Australia like it has in its home country of the US, Kogan's business is much more at risk that the likes of JB Hi-Fi.
Foolish takeaway
Despite the attractiveness of Kogan's model and ability to expand into other channels like mobile phone plans, we also need to consider what can happen to online-only retailers.
Surfstitch Group Ltd's (ASX: SRF) share price plunge from a high of $2.13 to today's price of 19 cents and Temple & Webster Group Ltd (ASX: TPW) fall from 97 cents to 15 cents illustrate what happens when they get it wrong.
I'm not saying that will happen to Kogan, but the current price means any slip-ups, no matter how small, and Kogan's share price could plummet. A P/E of 22x (similar to JB Hi-Fi) implies a 62% fall in Kogan's share price to around 59 cents.
Buyer beware.
