Looking through the near-term weakness, Credit Suisse believes there could be 68% upside to the Kogan (ASX: KGN) share price
The post This broker thinks you should buy the Kogan (ASX:KGN) share price dip appeared first on The Motley Fool Australia. –
ASX e-commerce shares are being shot down left, right, and centre after COVID-19 created unrealistic earnings expectations for FY21.
With the Kogan share price falling almost 50% year-to-date to 11-month lows of $10.30, this broker has made the bold call to buy the dip.
Why did Kogan fall off a cliff?
Kogan’s update reflects the broader ongoing reversal of supercharged COVID-19 driven earnings. Morgans has described what the market is currently witnessing as a cycle of tough comparisons to periods with COVID-19 tailwinds and “unlikely to be repeated” sales.
Kogan’s update looked promising at face value but revealed that earnings before interest, tax, depreciation and amortisation (EBITDA) fell more than 24% compared to the prior corresponding period.
As a result of lower customer demand, the company will have to store larger than expected levels of inventory, which could potentially lead to weaker margins in the near term.
Credit Suisse rates the Kogan share price as outperform
Credit Suisse believes the ongoing difficulties associated with stock levels returning to normal and cycling of strong sales growth is only temporary. Looking past the near-term slowdown, the broker is positive on Kogan’s medium-term outlook and opportunities.
Credit Suisse observed that the number of active customers continues to expand, but sales momentum appears to have slowed at a faster rate than expected. The broker retained an outperform rating and reduced its target price from $20.85 to $17.93.
With the Kogan share price fetching $10.30 at the time of writing, this represents a significant upside of 69%.
While Credit Suisse has put forth an eye-watering 69% upside to the Kogan share price, investors should also remember the risks of trying to ‘catch the knife’.
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Kerry Sun 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 and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.