Coupang (CPNG 1.23%) is a growing e-commerce company capitalizing on a significant opportunity to expand across Asia. It's headquartered in Seattle but dominates the South Korean market and has an expanding operation in Taiwan.
The stock was trading at an expensive valuation following its 2021 initial public offering. This explains why the shares have declined by 45% over the past five years, underperforming the S&P 500's 74% gain over the same period. But the business has continued to grow. With the stock now trading at a more reasonable valuation, it has increased by 20% over the last year, slightly outperforming the S&P 500's 16% gain at the time of writing.
Let's examine what has driven the stock's recent gain and why it may be well positioned to deliver long-term upside for investors.
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Coupang has a blueprint for growth
Coupang is demonstrating strong growth as it scales its operations in its home market and beyond. Revenue grew 18% year over year in the recent quarter. On a trailing-12-month basis through the third quarter, revenue was $34 billion, rising 16% over the last year. Investments in expanding the selection at attractive prices continue to attract new customers, with its active customer base up 10% year over year.
Most importantly, Coupang is achieving strong top-line growth while also expanding its bottom line. Free cash flow has increased to over $1.25 billion on a trailing-12-month basis. This is a notable improvement over the negative free cash flow it reported through 2022.
Positive cash generation is vital because it not only helps boost the stock price but also provides more resources for Coupang to invest in technology and expand into new markets, such as Taiwan, where it is showing early success. Management has noted that its operations in Taiwan are following a similar pattern of growth to its early days in South Korea, indicating that it may have tremendous growth potential in new markets across Asia.
NYSE: CPNG
Key Data Points
Profitable growth is fuel for the stock
Growth stocks can be volatile, and Coupang certainly tested investors' patience with the steep drawdown it experienced a few years ago. Ultimately, the growth of the business is what counts. Prospects for improving margins and free cash flow as the business continues to grow make it a compelling investment right now.
Analysts expect Coupang's revenue to grow at an annualized rate of 10% through 2029, reaching $48 billion. However, growth in Coupang's non-retail services, such as its Rocket WOW membership program, could boost its profitability. This explains why analysts project Coupang's free cash flow to grow to over $3 billion in the next four years.
The stock is currently trading at 39 times its trailing-12-month free cash flow, but using 2029 estimates, the price-to-free-cash-flow multiple drops to 16. Based on growth estimates, investors can expect the stock to potentially double within the next five years.
