Despite director sales, here’s why this top fund manager still likes Kogan.com (ASX:KGN) shares

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ASX:KGN

The Kogan.com Ltd (ASX:KGN) share price took a tumble on Tuesday after the two founding directors sold $40 million worth of shares in the e-commerce company at $6.40 per share.

This followed on from founder and chief executive Ruslan Kogan and fellow director and founder David Shafer selling a combined $42 million worth of Kogan shares at $7.00 per share.

Writing in its July update, the Blackrock Concentrated Industrial Share Fund said Kogan has continued to reinvent itself as one of Australia’s most successful online platforms.

Despite the directors sales, the fund said the business was very well managed. It said the Kogan team still have the vast majority of their wealth invested in the company and as young entrepreneurs it still thinks they are highly motivated to drive the business to much higher levels of profitability.

The fund says Kogan has built a trusted brand that stands for reasonable quality at a very good price, saying its ability to leverage low customer acquisition costs and data analytics into a number of new verticals like mobiles, NBN and insurance should continue to drive growth and diversify the business away from the competitive electronics space.

The Amazon threat

On the Amazon threat, the fund says it thinks increasing online penetration and acceptance
will actually help drive Kogan’s model. A comparison of prices undertaken by the fund shows that Kogan is already at or below many of Amazon’s offering.

Kogan.com shares are not cheap, trading at over 40 times trailing earnings.

The Blackrock fund says the share market can find it difficult to value companies that are growing as fast as Kogan and this can lead to higher volatility in the share price.

Over the past 12 months, the Kogan.com share price has traded as low as $3.18 and as high as $10.00. Just in the last three months, Kogan.com shares have slumped 39 per cent.

Blackrock have done a lot of work on the various verticals that Kogan currently play in and believe that the opportunity to not only push deeper into these verticals, but to also find new ways to add value to their highly engaged and growing 1.2 million customer base provides the fund with an attractive risk reward.

Earlier in the year the fund did lock in some meaningful profits on its Kogan.com investment at presumably much higher share prices than prevail today.

The Kogan.com share price currently trades at $6.18.

Kogan.com shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Kogan.com was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than Kogan.com. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au