Why are Kogan (ASX:KGN) shares being shorted in November?

A former market darling now fallen out of favour, but why?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in Kogan.com Ltd (ASX: KGN) have had a rough start to November so far. The eCommerce company has been plagued with concerns of ongoing inventory mismanagement since the latter part of 2020. As a consequence, the former darling has become a popular company to short.

The Kogan share price lacked direction in the context of today's session. After the closing bell, shares were at $9.14, up 0.22%.

A little boy measures himself against a ruler and comes up short.

Image source: Getty Images

A cyclical company currently out of fashion

It doesn't take a rocket scientist to work out it hasn't been a good time for Kogan shares over the last 12 months.

A backlog of inventory equating to increased warehousing costs has taken its toll on the company's earnings for the past three quarters. While the bottom-line dwindled, so too has the Kogan share price, falling 53% since this time a year ago.

Overall, the market seems divided over whether now is a good time to buy Kogan shares. Some analysts and fund managers think yes, others are not so keen.

For instance, Chris Stott from 1851 Capital joined Livewire back in September to share his argument for rating the eCommerce company a sell. At that point in time, Stott highlighted his belief that Kogan was still dealing with inventory issues. In addition, the fundie expected this issue to continue for a while longer.

It seems much of the market would agree to some extent. Kogan shares have featured prominently in the 10 most shorted ASX shares recently. In our latest 10 most shorted ASX shares, the Ruslan Kogan-led business found itself in second place with a short interest of 10.7%.

Despite this negative sentiment, the company posted gross sales and active customer growth in its recent first-quarter update for FY22. In the same update, Kogan revealed it had resolved previous inventory pressures.

However, short levels have remained elevated since this announcement, indicating that perhaps the market had anticipated better results.

Contrarian take on the Kogan share price

The sentiment seems heavily skewed towards the negative end of the spectrum for Kogan, which would make Credit Suisse's outperform rating quite a contrarian perspective. Analysts at Credit Suisse believe the eCommerce company will continue to benefit from the online shopping shift.

As such, the broker has a $13.88 price target on the Kogan share price. This would suggest a potential upside of 51%.

Motley Fool contributor Mitchell Lawler owns shares of Kogan.com ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Consumer Staples & Discretionary Shares

Surfer riding a wave.
Consumer Staples & Discretionary Shares

Which ASX retail company just rejected a deal to buy its Rip Curl stores?

The board couldn't see any value in the proposal.

Read more »

Beautiful young couple enjoying in shopping, symbolising passive income.
Earnings Results

Guess which ASX 300 stock is jumping 17% on strong results

This stock is catching the eye on Tuesday with a strong gain.

Read more »

A woman sits with a glass of milk in front of her as she puts a finger to the side of her face as though in thought while her eyes look to the side as though she is contemplating something.
Consumer Staples & Discretionary Shares

Why did Bell Potter just lower its outlook for this consumer staples stock?

Here's how the broker views the HY results.

Read more »

Man with cookie dollar signs and a cup of coffee.
Consumer Staples & Discretionary Shares

How high does Macquarie think Breville shares will go?

A leadership position in coffee has this company primed for growth.

Read more »

One girl leapfrogs over her friend's back.
Earnings Results

Premier Investments shares jump 8% on results and big interim dividend

Peter Alexander is performing but Smiggle is struggling.

Read more »

A happy young couple celebrate a win by jumping high above their new sofa.
Consumer Staples & Discretionary Shares

Which fast-growing Aussie furniture brand is about to list on the ASX?

This breakout brand is already profitable.

Read more »

A young man sits at his desk reading a piece of paper with a laptop open.
Consumer Staples & Discretionary Shares

Top broker says ASX this consumer staples stock could rise nearly 40%

Here's Bell Potter's updated guidance.

Read more »

Woman chooses vegetables for dinner, smiling and looking at camera.
Consumer Staples & Discretionary Shares

Should I invest $5,000 in Coles shares now?

This ASX supermarket stock may suit a $5,000 investment.

Read more »