The Kogan.com Ltd (ASX: KGN) share price was a disappointing performer again in April.
Despite a rebound late on in the month, the ecommerce company’s shares sank almost 8% during the 30 days.
This meant the Kogan share price had lost 42% of its value year to date at the end of the period.
Why did the Kogan share price come under pressure?
Investors were selling Kogan’s shares in April following the release of its third quarter update.
For the three months ended 31 March, the company reported a 47% increase in gross sales to $271.5 million.
This was driven by a 77% increase in active customers over the prior corresponding period to 3,215,000 for Kogan.com and 742,000 for Mighty Ape. This compares to active customers of 3,003,000 and 719,000, respectively, at the end of December.
However, despite the strong top line growth, things weren’t anywhere near as positive for its earnings. Which is the key reason for the underperformance of the Kogan share price.
Kogan revealed that its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) actually declined by 24% over the three months to $7.2 million.
This comprises $5.5 million EBITDA from Kogan.com, which was down 42.7%, and $1.7 million of EBITDA from Mighty Ape. The latter business was not part of Kogan in the prior corresponding period.
Management advised that customer demand fluctuated below the levels seen in the prior nine months. As a result, Kogan was required to store larger than expected levels of inventory, which led to the company incurring high storage expenses and demurrage fees.
Is this a buying opportunity?
One broker that sees the weakness in the Kogan share price as a buying opportunity is Credit Suisse.
Last week the broker retained its outperform rating but trimmed its price target to $17.93.
With the Kogan share price currently fetching $11.31, this price target implies potential upside of 58% over the next 12 months.
Credit Suisse believes the issues it is facing will only be temporary and feels investors should be focusing on its positive long term growth potential.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia 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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