Key Points: 

  • 5-star Kogan (KGN) shares are trading substantially below their pre-COVID levels, and is currently the most undervalued ASX stock covered by Morningstar. 
  • Kogan is one of the largest online retailers of discretionary goods in Australia, and well positioned to benefit from strong growth in the online retailing channel.
  • Kogan’s business strategy is broadly based on low-price leadership. However, as the competitive outlook intensifies from both Amazon and omnichannel retailers, Kogan is adjusting by launching a new online marketplace and building its product offerings in bulkier goods.

See more on why Kogan is one of our top picks


Johannes Faul
: Basically, what we're expecting to happen with Kogan is for their sales growth to reignite, if you like. They went through a period of extraordinary sales growth during the lockdowns and that unwound following the reopening of the economy. And now, we're still seeing their sales declining year-on-year, but that momentum is slowly turning around. So, what we've seen in the last quarter is that their sales growth, while still negative, is not as bad as it was, if you like. We believe that their sales growth will start going positive again. So, they'll grow sales coming into fiscal 2024 and that will be the catalyst for their EBIT margins, for the profit margins to come back to where they were before COVID.

So, another thing that happened during that boom that Kogan experienced during the lockdowns was with all that sales growth they built up significant amounts of inventory. And as it turned out, sales slowed – actually contracted and Kogan was forced then to right-size that inventory position that they had. That is now a thing of the past and going forward, they can now with the sales growth coming back and sales growth reigniting, we can see margin expanding again. That's our expectation for Kogan over the next 12 months.

Where we go from here? It will largely depend on how quickly sales will recover, and sales growth and margin growth are really tied at the hip from here. So, the discounting is behind us, and we've already seen a positive impact from that stopping, and from here, it's all about sales growth for Kogan.