There are few shares that have fallen further than Kogan.Com Ltd (ASX: KGN) recently, it's down 46% over the past five months.
Several reasons could be the cause of this drop. Management selling a decent chunk of their shares didn't help confidence. There has also been a large drop in the valuation of 'growth' shares. Plus, Amazon is stepping up its presence in Australia.
In FY18 Kogan revealed an impressive set of numbers. Revenue grew by 42.4% to $412.3 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 108% to $26 million. It grew its active number of customers by 45% to nearly 1.4 million people and ended with a net cash position on the balance sheet of $42.6 million.
Kogan reported earnings per share (EPS) of $0.15, meaning it's trading at 33x FY18's earnings and it has a trailing grossed-up dividend yield of 3.7%. It would only take the dividend to increase by 10% in FY19 for it to have a yield of more than 4%.
Kogan proudly boasted of doubling the profit each year for the past three years, so there could be a good chance of it growing profit by 33% (or more) in FY19, suggesting a PEG of 1 or less.
All the numbers seem very compelling. Plus, all the additional services such as Kogan Money should add to Kogan's growing profit network, allowing it to sell more products to the same customers.
It certainly makes me tempted to invest. However, there is a big question mark around competition.
Amazon is quite happy to operate at breakeven (or a loss) whilst it expands. Internet shoppers can very easily compare the prices of a product on Kogan and Amazon, then choose the cheapest. As Amazon Australia's scale gets bigger it will be able to offer lower prices. However, Kogan does sell some products on Amazon.
Kogan operates on low, but growing, margins. It wouldn't take much price competition to lose a chunk of earnings.
Foolish takeaway
It appears Kogan could be worth an investment at today's price. Whilst Amazon is a big competitor, Kogan can win a lot of business from bricks and mortar stores like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) – the pie is certainly big enough for Kogan and Amazon for now.
