The Kogan.com Ltd (ASX: KGN) share price might be a turnaround opportunity for long-term investors interested in the e-commerce ASX share.
Kogan share price demise
It has been a difficult 2021 for Kogan so far. Kogan shares have dropped by around 42% since the start of the year.
There are good reasons why the Kogan share price has suffered. The online retailer has revealed problems related to inventory, which collectively has cost the business millions of dollars. It’s having to lower prices and increase marketing to shift those products.
Management believe that the demurrage issues are over and that it has learned from the mistakes of the fast growth of the business.
But what about the future? There’s a good chance that the business might be a long-term opportunity.
That’s what Kogan’s leadership thinks. In a business update released in May 2021, Kogan said:
“The longer-term fundamentals for Kogan.com remain very attractive given the company’s position in the Australian and New Zealand online retail markets, and with online retail sales only accounting for a small percentage of total retail sales in Australia and New Zealand.”
A long-term turnaround opportunity?
Kogan has definitely had a volatile 15 months. Online sales (growth) weren’t likely to remain strong forever when government stimulus ended and physical shops reopened.
But over the longer-term, I think that Kogan has a lot of potential once it’s over these inventory problems.
I think there is a lot of value in its membership base. Not only are they paying members, but it has the potential to sell a larger range of services to those loyal members like mobile, insurance and so on. Members can be much more profitable clients. Kogan First members also purchase on average much more often than non-members.
Prior to the last few months, Kogan had seen steadily rising gross profit margins, a growing contribution growth and a rising EBTIDA margin (EBITDA explained). Those are attractive metrics.
Kogan can continue to invest for growth over the longer term and aim to win more customers. If its active customers can continue to increase and it can keep growing its profit margin in FY23 and beyond then it could do well. Mighty Ape growth in New Zealand can also be very helpful to the overall earnings.
According to CommSec, the Kogan share price is valued at 23 times the estimated earnings for the 2023 financial year.
It’s one of the ASX growth shares I have on my watchlist.
