Korean e-commerce giant Coupang(NYSE: CPNG) has seen its shares rocket 41% higher this year. The underfollowed growth stock put up another strong earnings report and then announced an upcoming price hike to its Rocket WOW subscription membership program. At a current stock price of $23, investors are valuing the company at a market cap of approximately $41 billion.
Despite this strong start to 2024, I still think Coupang stock is dirt cheap. Here's why the South Korean retailer may be the best growth stock to put $1,000 into right now.
Dominating e-commerce in South Korea
Coupang operates a similar business model to Amazon's but in South Korea. It has a sprawling logistics network that delivers items quickly and cheaply to its large customer base, a premium subscription service for free delivery, and grocery delivery, just like its North American competitor.
At the end of 2023, Coupang touted 21 million active customers, up 16% year over year. These customers love to spend on the Coupang marketplace, with total revenue of $24.3 billion in 2023. Even though it is investing billions of dollars into its logistics network, Coupang is already profitable and generating cash. It generated over $1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023 and a whopping $1.78 billion in free cash flow.
There is still plenty of opportunity left for growth in the South Korean retail market. Management estimates that there will be a $563 billion commerce opportunity just in South Korea by 2027. With less than $25 billion in annual revenue, Coupang is in no way close to hitting market saturation in its home country.
But that's not all the company has cooked up.
Succeeding in new markets
Starting a few years ago, Coupang experimented with its e-commerce marketplace in other Asian countries. Some of these experiments failed, but one has shown promise: Taiwan. After getting customer traction, Coupang decided to start investing more aggressively to build up its operations in Taiwan. This has led to rapid growth in the market, with revenue from Coupang's developing offerings growing 105% year over year last quarter. Most of this growth was driven by Taiwan.
Taiwan is an island nation with 24 million inhabitants and a wealthy GDP per capita, making it a perfect spot for Coupang to expand internationally. It is also relatively close to South Korea. Coupang plans to lose a lot of money in Taiwan over the next few years, but I think that is a good thing. It needs to spend aggressively to build up its fulfillment network in the nation and create a competitive advantage vs. other e-commerce marketplaces, just like in South Korea. Over the long term, it should generate plenty of profits.
CPNG Price to Free Cash Flow data by YCharts
Is the stock cheap?
As of this writing, Coupang has a market cap of $41 billion. In 2023, the company generated $1.78 billion in free cash flow, even though it was investing so much to grow in South Korea and Taiwan. That gives the stock a trailing price-to-free cash flow (P/FCF) of 23.
While not dirt cheap, I still think Coupang offers an incredible opportunity for people willing to buy and hold for the long term. Coupang's gross profit is growing at 32% year over year (as of the fourth quarter of 2023), and the company still has a huge runway for reinvestment. That doesn't even include its ambitions in streaming video, food delivery, and financial technology.
Even though it is up this year, Coupang looks like an incredible growth stock set to deliver monster returns over the next decade. Buy $1,000 worth of this stock and watch it produce solid returns for your portfolio.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brett Schafer has positions in Amazon and Coupang. The Motley Fool has positions in and recommends Amazon and Coupang. The Motley Fool has a disclosure policy.
