Stanley Druckenmiller bets on themes. Effectively, he does plenty of different issues, however when he invests in particular person shares, he sometimes buys due to a multi-year secular theme. It may well pay to take heed to the legendary investor and former right-hand man to George Soros, too, as he has put up phenomenal inventory returns over the lengthy haul. Within the 30 years of operating outdoors cash for Duquesne Capital Administration, he has averaged a 30% annual return whereas by no means having a down yr.
In the present day, Druckenmiller is just managing his personal capital by means of the Duquesne Household Workplace. However he’s nonetheless investing the identical method. As of his newest 13-F submitting, the household workplace had a concentrated portfolio, primarily of expertise shares. Two of his largest positions — Nvidia and Microsoft — have been extremely worthwhile bets on the expansion of synthetic intelligence (AI) and cloud computing. Nvidia is his largest place, whereas Microsoft is his third. Each make up over 10% of the household workplace’s portfolio.
These two shares are recognizable names with market capitalizations of over $1 trillion. However Druckenmiller’s second-largest place is small and never even working in the USA, his residence nation. The inventory is Coupang (CPNG -2.71%), the most important e-commerce operator in South Korea with plans to increase in East Asia. What does Druckenmiller see in Coupang inventory? Let’s discover out.
Why Coupang?
In accordance with CNBC, Druckenmiller grew to become an investor in Coupang years earlier than it went public in 2021. Since its debut on the general public markets, Druckenmiller has held on to most of his place, indicating he’s nonetheless bullish on the inventory in any case these years.
So what has him so bullish? I feel a number of issues. First, the corporate is working in a fast-growing sector: on-line purchasing in South Korea. Coupang’s income has gone from basically zero 10 years in the past to over $20 billion as we speak. It’s quickly gaining market share in its residence nation, with a protracted runway for reinvestment forward. The Korean commerce market (each offline and on-line) is roughly $500 billion. If Coupang retains gaining market share in e-commerce whereas increasingly more buyers shift from in-person to on-line purchasing, the corporate nonetheless has a few years left to develop.
Second, the corporate has a improbable founder operating the enterprise named Bom Suk Kim. Kim began Coupang and nonetheless runs the enterprise as CEO as we speak, overseeing its domination of the South Korean market. Founder-led companies have been proven to outperform the typical inventory. Buyers ought to need Bom Suk Kim to stay round at Coupang for a lot of, a few years.
Increasing into Taiwan
Coupang began out with an intense give attention to its residence market, South Korea. Now, it’s slowly increasing to different international locations in East Asia. First is Taiwan, an island nation with the same geographic density to South Korea. On the newest earnings name, Coupang’s administration stated it was rising its funding in Taiwan after seeing fast progress within the area. The Coupang cell app is projected to be essentially the most downloaded app in all of Taiwan for 2023.
Within the brief run, heavy investments into Coupang might result in widening losses. Coupang’s “creating choices” enterprise section noticed its adjusted lack of earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) loss widen to $160 million in comparison with $44 million in 2022. However over the long term, it should increase Coupang’s income and earnings potential. Buyers fascinated about Coupang will need to observe income progress from the creating choices section to validate the Taiwan enlargement. Final quarter, section income grew 41% yr over yr.
CPNG Market Cap information by YCharts
The inventory seems dust low-cost
Lastly, Druckenmiller is probably going nonetheless drawn to Coupang as a result of the inventory seems low-cost. Shares are down 71% from all-time highs, and its market capitalization is now simply $26 billion.
In 2023, Coupang ought to generate near $25 billion in income, relying on the foreign money fluctuations of the Korean gained and U.S. greenback. Over the long run, administration expects the enterprise to hit round 10% revenue margins. The corporate is already displaying progress on this regard, with web earnings hitting a margin of 1.5% final quarter regardless of the heavy losses coming from the Taiwan enlargement. Its core produce commerce section had an adjusted EBITDA margin of 6.6% final quarter.
A ten% revenue margin on $25 billion in income is $2.5 billion in bottom-line earnings. In comparison with a market cap of $26 billion, that provides Coupang a ahead price-to-earnings ratio (P/E) of 10.4. For an organization rising income at a quick fee (21% yr over yr final quarter) and with such a big market alternative forward of it, Coupang inventory seems undervalued at these ranges.
The time is correct to guess together with Druckenmiller. In the present day seems like an important shopping for alternative in Coupang inventory for traders who plan to carry on to their shares for a few years.
Brett Schafer has positions in Coupang. The Motley Idiot has positions in and recommends Coupang, Microsoft, and Nvidia. The Motley Idiot has a disclosure coverage.
