Why is the Kogan (ASX:KGN) share price still dropping? Scott Phillips weighs in

We take a look at the recent performance of Kogan shares

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Unfortunately for investors, the Kogan.com Ltd (ASX: KGN) share price has put the days of its COVID-era gains behind it.

Kogan, the ASX 200 e-commerce company that sells almost everything these days, was an early winner of the pandemic last year.

This was a company that started 2020 at around $7.44 a share but was approximately $25 a share by the time October rolled around. It turns out that being a one-stop online shop was a great business model to operate amid country-wide lockdowns.

Indeed, last year saw Kogan post a 39.3% increase in gross sales, a 39.6% increase in gross profits to $126.5 million, and a 35.7% bump for its active customer base for its FY 2020 results that we saw back in August last year.

Investors clearly liked what they saw because, by October, the Kogan share price was at its all-time high.

Kogan shares win big… and lose big…

But the subsequent year or so has been just as dramatic. It seems that as much as investors viewed Kogan as a pandemic winner, they also viewed it as a reopening loser. That's just going off the fact the Kogan share price is today sitting at $9.06. That's a good 63% or so from the company's highs of last year.

We asked none other than the Motley Fool's chief investment officer Scott Phillips for his thoughts on Kogan's dramatic reversal of fortune:

Kogan shares were flying high amidst the worst of the 2020 pandemic lockdowns, as Australians discovered a love of buying online (and physical stores were closed).

Almost immediately after vaccine approvals were announced, investors went cold on a lot of companies that were benefitting from the side-effects of COVID, including Kogan and others, with shares falling from almost $24 to $15.54 in 12 trading days in November 2020.

It's worth pointing out that investors did not react nearly as well to Kogan's August FY 2021 results as they did FY20's, with the Kogan share price sinking on the day the results were announced.

Even though Kogan posted another 52.7% increase in gross sales for FY21, as well as managing to grow its active customer base by another 46.9%, its reported net profit after tax fell by a nasty 8.8% to $3.5 million. Saying that, adjusted net profit rose 43.2% to $42.9 million.

A tale of one pandemic…

Even so, investors evidently didn't like what they saw here, possibly not helped by Kogan's 123% rise in costs to $44.9 million, or perhaps its flagged poor start to FY2022. Here's what Scott reckons went on here:

Adding insult to injury, Kogan had spent a small fortune buying inventory to meet the huge spike in demand, but ended up buying too much, having to clear excess stock and pay a small fortune for extra storage space in the meantime.

That, and expenses related to executive remuneration, saw profits fall 60% when the company reported its first-half results in February 2021, and which impacted its full-year earnings.

So that brings us to today's Kogan share price.

Kogan shares fell on its August earnings and have continued to fall. Since the company reported, Kogan shares have lost around 30% of their value. So why is this company continuing to drop? Scott sums it up nicely:

While no-one can ever truly know what 'the market' is thinking, it seems investors are waiting to see if Kogan can return to sustained growth.

At the current Kogan share price of $9.06, this company has a market capitalisation of $980 million.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool's chief investment officer Scott Phillips owns shares in 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.

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