Why Coupang Rallied 20% in May

Shares of Korean e-commerce giant Coupang (NYSE: CPNG) rallied 20% in May, according to data from S&P Global Market Intelligence .

Coupang reported first quarter earnings in the early part of the month, and while results may have looked mediocre on the surface, they were actually much better than advertised.

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Stocks in general also generally climbed in May, as April's trade tensions eased somewhat, adding an additional tailwind.

Coupang promises 20% growth this year

In its first-quarter report, Coupang grew revenue 11%, which missed expectations, although earnings per share of $0.06 beat expectations by $0.01. Yet while that headline revenue figure "missed," that was likely due to a massive currency effect. In constant currency of largely the Korean won, Coupang's growth was actually 21%.

Coupang's main products segment, largely reflecting its Korean e-commerce services, grew 6% to $6.9 billion and 16% in constant currency, with customers up 9% from last year. Meanwhile, Coupang's smaller Developing Offerings, which include international e-commerce, the Eats delivery platform, Play, Fintech, and luxury e-commerce platform Farfetch, grew 67% to $1.0 billion, or 78% in constant currency.

Management also showed its confidence by authorizing a $1 billion share repurchase program.

The two big positives were one, management's projection for 20% revenue growth in constant currency for the full year, which means it's optimistic the current growth cadence will continue despite economic uncertainty. Second, Coupang showed impressive margin expansion in the quarter. In Q1, gross margins expanded 2.1 percentage points, with product segment gross margins up 3.0 percentage points, while adjusted EBITDA margins expanded 0.88 percentage points and product EBITDA margins grew 0.81 percentage points.

E-commerce stocks usually suffer from low margins, so that margin expansion was a big positive sign.

Image source: Getty Images.

Coupang continues to execute, but the stock looks expensive

After its recent run, Coupang's market cap has rallied to over $51 billion, or over 200 times earnings and 130 times this year's earnings estimates. While the company appears to be dominating the Korean e-commerce market, it looks like investors are anticipating some of its other developing offerings to become big businesses as well.

That being said, this past quarter showed promising execution and margin expansion from Coupang's team. So, it's not a surprise to see the stock higher, as consumer-oriented stocks largely recovered from the April tariff-related malaise.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Coupang. The Motley Fool has a disclosure policy.