Over the last six months, Coupang’s shares have sunk to $19.11, producing a disappointing 13.8% loss - a stark contrast to the S&P 500’s 7.2% gain. This might have investors contemplating their next move.
Is now the time to buy Coupang, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Coupang Not Exciting?
Despite the more favorable entry price, we’re swiping left on Coupang for now. Here are three reasons why there are better opportunities than CPNG, plus one stock we’d rather own.
1. Low Gross Margin Reveals Weak Structural Profitability
For online retail (separate from online marketplaces) businesses like Coupang, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include the cost of acquiring the products sold, shipping and fulfillment, customer service, and digital infrastructure.
Coupang’s unit economics are far below other consumer internet companies because it must carry inventories as an online retailer. This means it has relatively higher capital intensity than a pure software business like Meta or Airbnb and signals it operates in a competitive market. As you can see below, it averaged a 29% gross margin over the last two years. That means Coupang paid its providers a lot of money ($70.96 for every $100 in revenue) to run its business.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Coupang, its EPS declined by 40% annually over the last three years while its revenue grew by 18.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Coupang has shown mediocre cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2%, below what we’d expect for a consumer internet business.
Final Judgment
Coupang isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 3.1× forward price-to-gross profit (or $19.11 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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