Is It Too Late to Buy Coupang Stock?

South Korean e-commerce company Coupang (NYSE: CPNG) launched its U.S. IPO in March 2021, and those hoping at the time that they had found the next great e-commerce company were likely disappointed.

Since Coupang began trading, it has lost more than half of its value. However, that figure includes a recovery of more than 130% from its May 2022 low. The question for investors is whether that increase means investors are too late, or does that indicate investors have time to get in on a long-awaited recovery?

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Coupang's growth prospects

Admittedly, Coupang's growth story may not appear as appealing as companies serving larger markets such as MercadoLibre.

Coupang's home market of South Korea has a population of 52 million. Even when one counts Taiwan at 24 million, Coupang's addressable market is less than 100 million, far below MercadoLibre's addressable market of more than 650 million. Also, Coupang's estimated market share of 24% is just marginally above a competitor called Nave, according to WPIC.

Nonetheless, it operates more than 100 fulfillment centers within South Korea, placing 70% of the country's population within seven miles of a logistics center. That network can provide same-day or next-day delivery to almost all of South Korea's residents.

Coupang's platform allows for efficient orders and fulfillment, while its artificial intelligence (AI) technology can forecast demand spikes and have products ready when customers need them.

Furthermore, Coupang bulls will like that Grand View Research estimated the compound annual growth rate (CAGR) for South Korean e-commerce at 22%. That likely means the company will remain in growth mode as it captures more of that market share.

What the numbers tell investors

Coupang's recent performance has closely reflected that CAGR. Its 2024 revenue of just over $30 billion increased by 24% compared to year-ago levels.

Additionally, its 2024 net income of $66 million fell significantly amid a $776 million, one-time income tax benefit in 2023. Still, the company generated just over $1 billion in free cash flow during the year, which places its financial situation in a more favorable light than its net income might indicate.

Unfortunately, revenue growth is on track to slow to 14% in 2025 before recovering somewhat to 15% by the next year. Even with the partial recovery, that could bode poorly for the stock, as investors tend to sour on stocks with slowing revenue growth.

Also, the valuation metrics offer a mixed picture. Although the effects of the income tax benefit skewed the P/E ratio, Coupang has a price-to-free cash flow ratio of around 39, significantly above the average of 34 for the previous three years. Its price-to-sales (P/S) ratio has remained relatively steady, as its 1.3 sales multiple has shown little variance in recent years.

Amid such numbers, one has to assume the stock is slightly expensive. Still, such metrics are unlikely to deter buyers if they perceive Coupang as a lucrative opportunity.

Is it too late to buy Coupang stock?

Given current conditions, it is probably not too late to buy Coupang stock. However, a bigger question is whether it is too early to buy shares, and it does not look like a lucrative opportunity under current conditions.

Coupang launched its IPO in a high-flying bull market, where its e-commerce peers commanded lofty valuations. The stock slid steadily, losing more than 80% of its value by May 2022, so even its 130% "recovery" leaves it far below the stock's all-time high.

Admittedly, despite heavy competition and a smaller addressable market, Coupang has prospects for further growth as South Korea and Taiwan further embrace e-commerce. Still, paying a higher valuation when revenue growth is slowing could bring shareholder pain -- an indication that investors should probably refrain from adding shares at this time.

Will Healy has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool recommends Coupang. The Motley Fool has a disclosure policy.