I subscribe to the notion that investors are best off giving new initial public offerings (IPOs) at least a year to trade on the public markets before investing in them.
Many IPOs are overhyped, overvalued, and generally in a state of flux as they transition from a private company to a publicly traded stock. Thanks to a confluence of these factors, the majority of new IPOs struggle right out of the gate.
A perfect example of this phenomenon is leading South Korean e-commerce juggernaut, Coupang (CPNG -0.26%).
Hitting the markets around $50 per share amid the white-hot IPO scene of 2021, Coupang saw its share price plummet to $8 within 18 months. Currently, its share price remains only about half of its original IPO price.
However, over these same four years, Coupang has doubled its revenue, turned into a cash-generating machine, and solidified its spot as the leading e-commerce company in South Korea.
Now, as the company builds upon its top-dog and first-mover status in its niche, I believe it looks like a no-brainer growth stock to buy and hold for a decade -- over which time I believe it will reach new all-time highs.
Here's what sets Coupang's future apart from some of its more disappointing recent IPO peers.
Image source: Getty Images.
Three reasons to consider buying Coupang stock
Coupang is the top dog and first mover in the e-commerce industry in South Korea. It accounts for roughly one-fourth of all e-commerce in its home country.
This leadership position alone is a powerful quality for any stock.
However, it is especially mighty for Coupang as it allows the company to "set the tone," so to speak, with its goal of best-in-class customer service.
Coupang wants to "wow" its customers
Coupang has a natural advantage thanks to South Korea's high population density and the fact that 81% of the country's citizens live in an urban setting. This population density allows Coupang to offer services like dawn delivery on orders placed before midnight, same-day delivery for many items, next-day delivery for virtually all items, and a vastly simplified returns process.
Since its logistical network is more condensed than similar retailers in China, Latin America, or the United States, Coupang's streamlining operations make it a compelling investment proposition. With its network covering South Korea stem to stern, Coupang has positioned itself to fend off competitors by providing customers with superior service and satisfaction.
According to the National Customer Satisfaction Index, Coupang had the highest customer satisfaction score among its peers in South Korea in 2024 and held many similar accolades over the years.
On top of its more basic e-commerce offerings, Coupang also offers free grocery delivery, restaurant delivery, streaming media, online payments, installation for appliances, and discounts through its WOW membership for less than $6 a month.
Combining all of these services onto one app, Coupang has built a retailing ecosystem in South Korea that will be difficult to disrupt.
Growth options abound
Despite its leadership advantage in the traditional e-commerce niche in South Korea, don't think the company's growth days are over.
First, Coupang dove headfirst into a new premium category following its $500 million buyout of distressed luxury goods e-commerce platform Farfetch in 2023. Prior to the acquisition, Farfetch was generating more than $4 billion in sales annually, but it was losing hundreds of millions of dollars on the bottom line.
Now under Coupang's umbrella, Farfetch has reached breakeven profitability, according to management. Furthermore, it drew a staggering 49 million monthly visitors from 190 countries as of the fourth quarter in 2024. With South Koreans leading the world in luxury spending per capita, this acquisition could prove to be a powerful growth lever over time.
Second, the company continues to see success with its recent expansion into Taiwan. Ninety days after growing sales by 23% quarter over quarter in the country in Q4, the company launched its WOW membership program in the country and grew its product selection there sixfold in Q1 this year.
Management believes its growth in Taiwan is on a trajectory similar to that of its South Korean business when it was in hypergrowth mode. Home to a population of roughly 23 million people -- compared to South Korea's 52 million -- Taiwan could prove to be another promising growth option for Coupang.
A surprisingly reasonable valuation
Coupang currently trades at a lofty 48 times free cash flow (FCF). However, most of this is due to the fact that the company spends half of its cash from operations (CFO) on capital expenditures (capex).
CPNG FCF = CFO-CapEx (TTM) data by YCharts
Since FCF equals CFO minus capex, Coupang's price-to-FCF (P/FCF) ratio will continue to look elevated due to the company's heavy spending on capex to fund growth, such as building a logistical network in Taiwan.
However, if Coupang quit spending on its growth ambitions and only tried to generate as much cash as possible, its P/FCF ratio would be much closer to its price-to-CFO ratio of only 24 -- a discount to the S&P 500's average of 32 times FCF.
With Coupang growing sales and active customers by 11% and 9% in Q1 -- all while its gross and net profit margins improve -- its valuation seems quite reasonable.
Already leading the way in South Korea and quickly expanding into Taiwan and the world of luxury goods, Coupang remains one of my favorite growth stocks.
