Shares in online retailer Kogan.com Ltd (ASX: KGN) were racing higher yesterday – up over 10% at one point during the day.
The sentiment around the company seems to have picked up recently. Since reaching lows of around $8.70 per share last month, Kogan’s shares have bounced just under 50% to their current level of $13 per share.
Taking a longer-term outlook, Kogan’s shares are still quite a way off where they were last year after reaching highs of over $25.5 last year.
KGN share price
Why are Kogan’s shares rocketing?
Kogan is likely benefitting from the recent news that New South Wales will enter a state of lockdown to curb the spread of COVID-19.
While this lockdown doesn’t necessarily mean Kogan will experience a material uptick in sales, it seems like the short-term sentiment is highly sensitive to news surrounding this topic.
This is likely why we’ve seen a bounce in other retailers such as Redbubble Ltd (ASX: RBL) and Temple & Webster Group Ltd and falls in recovery stocks like Qantas Airways Limited (ASX: QAN) and Webjet Limited (ASX: WEB).
Can the momentum continue?
While the positive sentiment is sending Kogan’s shares in an upwards direction for now, this will likely not be enough to drive longer-term returns for its shareholders. As a rule of thumb, a company’s share price will often move in the same direction as the earnings (profits) that it reports.
Kogan plans to release its full-year FY21 results on 16 August 2021.
The future outlook for Kogan
In my view, Kogan’s next set of financial results will be a key piece of information necessary to judge the longer-term outlook of the company.
Management recently revealed that inventory levels had risen due to forecasting errors resulting in demurrage charges.
The optimist could give Kogan the benefit of the doubt and suggest that this is a better result than being short on inventory.
Those with a more bearish stance might infer that demand should’ve been significantly higher considering Kogan’s increased level in marketing and discounting activities.
For more clarity, I’ll be waiting to see what Kogan reports later in August. For more reading on the bull and bear case for Kogan’s shares, click here to read: The bull and bear case for the Kogan (ASX: KGN) share price.
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