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Why the Kogan share price crashed 23% lower today

James Mickleboro
Share price plummet

The Kogan.com Ltd (ASX: KGN) share price has started the week deep in the red.

In morning trade the ecommerce company’s shares crashed a massive 23% lower to $6.13.

They have since recovered slightly, but are still down 15% at the time of writing.

Why is the Kogan share price crashing lower?

Investors have been heading to the exits in their droves on Monday after Kogan released a surprisingly disappointing first half update.

That update revealed that Kogan’s gross sales and gross profit grew 16% and 9%, respectively, over the prior corresponding period during the first half.

Whilst on paper this is not a terrible result, it is worth noting that its gross profit growth has slowed markedly since the end of the first quarter.

During the first quarter Kogan delivered gross sales growth of 16% and gross profit growth of 28%.

This means that within three months, Kogan has gone from growing its gross profit almost twice as quickly as its sales to almost half as quickly.

What has happened?

Kogan didn’t provide an explanation for the sudden slowdown in its gross profit growth, but it did reveal that Third-Party Brands sales fell materially.

This was due in part to the growth of its Kogan Marketplace business, which posted gross sales growth of 44% on the prior quarter.

One positive was that the company’s operating costs reduced during the period.

This should mean that its profit after tax, which was not revealed, will grow at a moderately quicker rate than its gross profit. But probably not as much as many in the market were hoping following the impressive first quarter update in October.

Should you buy the dip?

Whilst this update was very disappointing, I feel the selloff could be a buying opportunity for long-term focused investors.

After all, with more and more retail purchases heading online, Kogan is well-positioned for long-term growth. It may just be a little more of a bumpier ride than hoped.

Also falling heavily on Monday have been the shares of Gentrack Group Ltd (ASX: GTK) and NIB Holdings Limited (ASX: NHF). They have made double-digit declines following the release of updates of their own.

The post Why the Kogan share price crashed 23% lower today appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Kogan.com ltd and NIB Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020