Insights

Why Coupang Stock Was Rallying 12% Higher Today

What happened

Shares of South Korean e-commerce company Coupang (NYSE: CPNG) were racing 12.2% higher today as of 11:55 a.m. ET. The reason? Stock analysts at Morgan Stanley and Credit Suisse were both waxing bullish on the company this week. The latest note came from Credit Suisse, which said in a research note that a slowdown in consumer spending is already priced into the stock at this point.

Coupang stock is down nearly 51% through the first half of 2022, and down 81% from its all-time high.  

So what

Growth stocks have been battered this year as the Federal Reserve raises interest rates in an attempt to combat inflation. Higher rates generally weigh down risk assets and lower the present value of a stock. But in a double whammy from the Fed’s aggressive posture, the global economy’s growth is also slowing. Consumers have been particularly vulnerable as they digest higher costs of energy, food, and other staples.

That’s bad news for companies like Coupang that rely on household spending. Its revenue grew 22% year over year in the first quarter of 2022, a slowdown from the 54% growth rate it reported for full-year 2021.

Now what

Given macroeconomic challenges, Coupang has been paying more attention to generating profitability. In particular, Credit Suisse’s research suggests that the food delivery service Eats — a growth initiative that has been costing Coupang significant money — might have turned a corner. That bodes well for Coupang’s bottom line; its adjusted EBITDA is homing in on breakeven and had “only” a $91 million loss in the first quarter.

If Coupang can prove it’s able to turn a profit this year, shares could be in for a more significant rebound. The stock currently trades for just 1.3 times trailing-12-month sales.

Nicholas Rossolillo and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Coupang, Inc. The Motley Fool has a disclosure policy.

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