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Coupang (NYSE:CPNG) presents far more reward than risk after a recent selloff, according to a new initiation note from Morgan Stanley.
Adding the name to its coverage, the bank’s analysts Seyon Park and Kelly Kim advised clients that the Korean eCommerce leader should continue to grow rapidly and quickly justify its multiple. In fact, the team advised that a selloff that has cut the stock in half over the past 6 months has made the opportunity more attractive than ever.
“We believe Coupang’s dominant position, with its fulfillment and logistics infrastructure,
makes it a unique asset which should support further market share gains and generate
cash flows,” Park and Kim wrote in a report. “A share price correction has made valuations compelling, and we initiate at Overweight.”
The team added that the fast growing nature of the eCommerce industry in Korea should continue to support rapid growth while the company narrows its focus on reaching consistent profitability. The team forecast the company to generate positive free cash flow from 2024 onward, with scaled back promotional activity aiding bottom line improvements.
As management moves towards this profit focus after falling over 75% from their peak, Park and Kim voiced their belief that the downside risk has already been realized.
“With the shares now looking to have found a floor, the hurdles the company needs to meet in order to justify its current market capitalization look much more attainable,” the team explained.
“In particular, at current valuations we believe Eats, overseas initiatives, and fintech no longer need to contribute visibly, which sets up the stock well as the company needs only to execute on the e-commerce side.”
On this side, Kim and Park pointed to Coupang’s (CPNG) hulking market share, 20 times its nearest competitor in Korea, as a signal that this hurdle will be easily cleared. Any advancement in ancillary businesses, therefore, will only add to upside for the stock.
Shares rose more than 3% in the waning hours of Wednesday’s trading.
To be sure, many analysts have come out with quite bullish analyses on Coupang (CPNG) for much of its life as a publicly traded company. For example, Deutsche Bank called out a buying opportunity in March only for the stock to fall precipitously from that point, while a similar (albeit smaller) drop occurred shortly after JP Morgan called shares oversold.
