March marked the third consecutive month-on-month decline for the Kogan.com Ltd (ASX: KGN) share price. With its shares bouncing 8% higher so far in April, is it time for Kogan shares to make a comeback?
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What's driving the Kogan share price lower?
Diverging performance between retail and ecommerce shares
Classic ASX retail shares such as JB Hi-fi Ltd (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Adairs Ltd (ASX: ADH) are within an arms reach of all-time record highs. This comes off the back of a significant rebound in 2020 and a relatively stable performance so far in 2021.
Conversely, ecommerce enabled businesses such as Kogan, Temple & Webster Group Ltd (ASX: TPW), Mydeal.com.au Pty Ltd (ASX: MYD) and Redbubble Ltd (ASX: RBL) have logged negative returns across the board this year.
Why are ASX ecommerce shares underperforming?
Ecommerce businesses might be able to grow faster than traditional retail, but these companies typically fetch a much higher valuation.
This leads to the issue in March, which witnessed a significant underperformance in growth and tech-related sectors, largely driven by a surge in bond yields. The S&P/ASX200 Info Tech (ASXINDEX: XIJ) fell 5.80% in March compared to the flat performance of the ASX 200 and outperformance in sectors such as financials.
Many ecommerce shares fetch a tech like valuation, which is the case for Mydeal, a loss-making business. As well as Redbubble and Temple & Webster, which both recently started to turn a small profit.
While the Kogan business might be kicking goals, it's likely swimming against the tide as tech-related shares came under pressure.
What's the outlook for the Kogan share price?
The outlook from Kogan's half-year results was positive, noting that unaudited management accounts show that gross sales, gross profit, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was up 45%, 102% and 90% respectively. The company plans to further expand its exclusive brands, develop its Kogan Marketplace and complete the integration of Mighty Ape.
The most recent broker updates for the Kogan share price date back to 1 March from UBS and Credit Suisse.
UBS reaffirmed a more cautious view on the 12-month outlook as trading might have slowed. It points to key risks being the accelerated investment in online channels by traditional bricks and mortar retailers. As a result, the broker retained a neutral rating and a $15.10 target price.
Credit Suisse was more bullish and positive on the company's medium to long term growth prospects. It was pleased with the growth in Kogan's private label revenue and sees it as an important component of the business' value proposition. The broker retained an outperform rating with a $20.85 target price.
The Kogan share price is currently hanging around 10-month lows of $13.03.
