In several prior articles on InvestorPlace, I mentioned that you should not read into any one single news item or development. You shouldn’t ignore it but you must also consider the bigger picture. But with Coupang (NYSE:CPNG), stock this understanding may require a few tweaks.
Coupang is performing so poorly in recent sessions that you might want to take the hint and run.
On a year-to-date basis, Coupang shares have dropped nearly 30%. Granted, the year is young – not even three weeks into 2022 at the time of writing. If CPNG stock had shed say 5% or 6% during this time, I’d say it’s not time to panic. We shouldn’t ignore what the data is telling us, but we also shouldn’t overreact.
But 30%? That’s a terrible metric made far worse because we’ve barely had time to psychologically acclimate. Some of you who still prepare physical checks may have already made a few mistakes signing “2021” as opposed to “2022.” Thus, CPNG stock radically changing its profile during this time is an incredibly worrying circumstance.
Still, if that was the only piece of bad news, investors might be forgiven in viewing this condition as a buying opportunity. However, another factor that popped up on my radar makes me even more nervous: the insiders are selling CPNG stock.
To be fair, not everybody closely associated with Coupang has cold feet. Most notably, Greenoaks Capital Partners bought 620,266 shares on Dec. 1. But the thing about even that trade was that records show the share price transacted was $26.72.
At time of writing, CPNG stock closed at $20.61, meaning that in just a little over a month and a half, Greenoaks absorbed more than a 20% loss.
Coupang needs to rise, now.
The Writing May be on the Wall for CPNG Stock
While being an optimist is usually a positive attribute in life, it can also lead you into some bad decisions in the market. To be fair, confidence in a visionary outlook is often the impetus to take a shot with something like CPNG stock. But it can also convince you to hold on for longer than you should.
I’m beginning to think that’s the case here with Coupang. Initially a compelling e-commerce narrative to address the lucrative South Korean market – and perhaps other east Asian segments – CPNG stock appears to now be suffering from a viability and sustainability problem. Further, insiders selling their shares add fuel to the fire.
Another clarifying point is needed: just because some insiders sell portions of their stake doesn’t necessarily mean the issuing company is about to go under. It also doesn’t mean you should follow their lead. However, in context, the specific case for CPNG stock is troublesome.
Mainly, the financial performance corroborates why the insiders are feeling jittery. After paring net losses between 2018 through 2020, this metric widened unfavorably to a loss of $1.23 billion over the trailing-12-month (TTM) period.
What’s more, the red ink on free cash flow ballooned from a loss of $183 million to a staggering loss of $867 million on a TTM basis. Now, most of the drain comes from losses associated with the purchase of property, plant and equipment, which is understandable. However, the company also showed a TTM loss of $191 million in cash flow from operations.
Basically, a negative cash flow from operations means a business is spending more than generating in income. It happens but it’s an “effective” way to lose investors if this circumstance isn’t rectified soon enough.
Just Follow the Logic
Again, let’s be levelheaded about the metrics above. Negative free cash flow and net losses are common badges of honor for growth firms, especially one with disruptive potential like Coupang. I wouldn’t fret if we were just talking about these circumstances.
But in combination with the deteriorating price of CPNG stock, some important insiders are selling into the fire. That’s very distracting, akin to a pilot reaching for his parachute while wishing his passengers the best of luck.
Maybe it’s not that bad. But if you want me to buy the recovery rah-rah story, your fingers better be well away from that sell button.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.