South Korean e-commerce giant Coupang (NYSE:CPNG) made a splashy debut with its initial public offering in March. CPNG stock was priced at $35 a share. It shot up to a high of $69 on its first day of trading before closing up 40%. Since then, it’s been mostly downhill for shares.

In late July, CPNG stock fell below its IPO price. Last month, shares looked like they would find support at $30. Instead, they sold off sharply with the broader market. Currently, trading just below $19 a share, CPNG stock is down more than 35% so far in 2022.

The sell-off is not surprising. Investors are frantically reducing positions in companies that are not yet profitable. While third-quarter revenue surged 48% to $4.6 billion, Coupang posted a loss of $324 million, compared to $173 million a year ago. Both metrics were worse than analysts were expecting.

Since Coupang chose to invest in the business instead of earning a profit, what is the company’s fair value?

Heavy Spending Weighs on CPNG Stock

Many investors compare Coupang to Amazon (NASDAQ:AMZN). It was seven years before Amazon reported its first quarterly profit in 2001.

Coupang has been at it for 12 years, though, and investors’ patience appears to be wearing thin. The company has yet to turn a profit, as it has been investing heavily in its overnight and food delivery services, including building 10 fulfillment centers.

Going forward, Chief Executive Officer Kim Bom is likely to face mounting pressure. He will need to weigh the risks of a shareholder exodus against the cost of building the company’s food delivery business, Coupang Eats.

Coupang generated nearly $12 billion in revenue in the first nine months of 2021, up 58% year over year. Assuming revenue growth does not slow, investors should expect to see profits starting in 2024. Between now and then, we could certainly see CPNG stock fall further as the company continues to post quarterly losses.

Coupang’s Opportunity, Risks

Coupang has an entrenched core e-commerce business. It launched its Rocket Delivery service in March 2104, guaranteeing products would be delivered within 24 hours of purchase. In October 2018, it launched a subscription-based delivery service called Rocket Wow, which offers free-next-day delivery and no-cost returns.

Coupang entered the food delivery space in 2019 with the launch of Coupang Eats, which is currently the third most-used food delivery app in South Korea. As competition heats up in the space, some of Coupang’s rivals are looking to branch out into e-commerce by selling flowers and other non-food items through their apps. But this is unlikely to phase the country’s second-largest e-commerce platform as it seeks to capitalize on the growing volume of food delivery to homes.

Coupang also has international expansion plans. Last year, it entered Japan, its first international market. It launched in Taiwan a month later. The launches allow Coupang to test its service in nearby countries. However, they may also attract competition that could pressure profit margins.

For example, Sea Ltd.’s (NYSE:SE) Shopee is currently available in Taiwan, as well the Philippines, Thailand, Singapore, Malaysia, Indonesia and Vietnam. Coupang’s initial success in Japan might encourage it to enter that market, too.

Considering the Fair Value of CPNG Stock

After a sharp haircut, CPNG stock is trading with a price-to-sales ratio of around 2. That’s slightly below the P/S ratio of Chinese e-commerce giant Alibaba (NYSE:BABA), which is still in the crosshairs of China’s Communist Party. Coupang does not have any obvious political risks.

Amazon trades at a P/S of just over 3. While more expensive than CPNG stock based on this metric, Amazon also has a profitable cloud services division.

According to TipRanks, just three analysts follow the stock, rating it a “moderate buy” with an average price target of $35.33. But two of them have not posted a report in over two months. Market sentiment was different then.

In a five-year discounted EBITDA exit model, the fair value calculation uses an EBITDA exit multiple to calculate the terminal value after five years. Below are the metrics:

Model courtesy of finbox.

In this interactive model, assume that Coupang posts a small profit starting in 2024. This would imply a fair value of around $21, or about 11% above the current price.

The Bottom Line on CPNG Stock

Shareholders need to sit tight until Coupang posts its next quarterly earnings report, which is expected next month. Amid tense markets, the CEO must convince investors the company’s expansion plans will pay off.

Coupang needs to post strong numbers from its core e-commerce business lifted by holiday demand. That could stabilize CPNG stock, at least for the short term.

On the date of publication, Chris Lau 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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.