7 E-Commerce Stocks to Buy as Shopify Suffers
InvestorPlace - Stock Market News, Stock Advice & Trading Tips From online retail giants to traditional stores with robust digital sales, these are the best e-commerce stocks to invest in...
E-commerce stocks have seen explosive growth over the past decade, as online sales have increased exponentially. According to eMarketer, worldwide e-commerce revenue should exceed $5 trillion in 2022, accounting for more than a fifth of total retail sales.
Moreover, total spending is expected to surpass $7 trillion by 2025. Therefore, e-commerce stocks represent a multi-trillion-dollar growth opportunity over the next few years.
Yet, investors have scaled down their exposure to high-growth stocks in response to rising inflation during the latter months of 2021. In addition, the increasingly hawkish stance by the Federal Reserve and the latest talk about multiple rate hikes have scared investors away from high-multiple stocks.
Coupled with the recent echoes of war in Eastern Europe, e-commerce stocks have underperformed broader markets. Whereas the S&P index rose 27% in 2021, the Dow Jones Internet Commerce Index was up only about 3%.
As the market selloff has accelerated since the beginning of 2022, most e-commerce stocks have continued their descent as well. For instance, investors' darling Shopify (NYSE:SHOP) is down more than 50% since the start of the year.
Nevertheless, we have many reasons to be optimistic about the long-term market outlook for the e-commerce industry. The Covid-19 pandemic has accelerated the move toward online shopping. As a result, e-commerce stocks provide investors with an attractive opportunity to capitalize on this lasting trend in 2022.
With that said, here are seven e-commerce stocks that offer investors significant potential to derive double-digit returns in 2022:
- Amazon (NASDAQ:AMZN)
- Etsy (NASDAQ:ETSY)
- Global X E-Commerce ETF (NASDAQ:EBIZ)
- Mercadolibre (NASDAQ:MELI)
- RH (NYSE:RH)
- Sea Limited (NYSE:SE)
- Target (NYSE:TGT)
E-Commerce Stocks: Amazon (AMZN)
52-week range: $2,707.04 – $3,773.08
Investors need little introduction to the leading online retail giant Amazon, which focuses on e-commerce, cloud computing, digital streaming and artificial intelligence (AI). The tech giant has become the world's largest internet company, online marketplace, AI assistant provider and cloud computing platform.
Amazon released fourth-quarter 2021 results on Feb. 3. Revenue increased 9% year-over-year (YOY) to $137.4 billion. Net income came in at $14.3 billion, or $27.75 per diluted share, compared with $7.2 billion, or $14.09 per diluted share, a year ago. Cash and equivalents ended the period at $36.5 billion.
A tight labor market has forced Amazon to increase wages for most of its workers. In addition, e-commerce margins were hurt by rising prices and supply chain bottlenecks. However, these short-term headwinds are expected to resolve as the pandemic wanes.
Regular InvestorPlace readers may know Amazon Web Services (AWS) provides an on-demand cloud computing platform. AWS has become a cash cow that supports the tech giant's other investments.
The segment generated revenue of $62 billion in 2021, up 37% YOY. The platform accounted for only 13% of Amazon's 2021 revenue yet generated 74% of its operating income. Analysts concur Amazon is a resilient powerhouse weathering further declines in equities.
AMZN currently trades at $3,044, down 3% over the past 12 months. Shares are trading at a multi-year low of 52.9 times forward earnings and 3.4 times trailing sales. The 12-month median price forecast for Amazon stock is $4,100.
52-Week range: $109.38 – $307.75
Etsy is an online retailer focused on handmade goods, crafted goods and vintage items. Its business model primarily relies on sellers listing a wide range of one-of-a-kind items on its platform.
Etsy announced Q3 2021 financials in early November. Consolidated revenue increased 18% YOY to $532.4 million. Net income declined 2% YOY to $90 million, or 62 cents per diluted share, compared to $92 million a year ago. Cash and equivalents ended the period at $907 million. The decline in Q3 net income was primarily due to acquisition-related expenses and non-cash amortization for Depop and Elo7 acquisitions.
Etsy management initially saw its total addressable market as $100 billion for specialized goods, of which they have about $12 billion of annualized revenue. Including the special merchandise like craft markets and non-online sources, they put their addressable market at $1.7 trillion, a significant market size by any measure.
The online retailer boasts more than 95 million active buyers. This customer base has enabled the company to sell more than $3 billion of merchandise via its platform in the third quarter of 2021. Over the past year, Etsy has grown its brand portfolio with acquisitions of Elo7, the Etsy of Brazil, music marketplace Reverb, and fashion items reseller Depop.
ETSY stock currently trades around $160, down 48% from its high in late November. Down 28% year-to-date (YTD), shares are trading at 36 times forward earnings and 9.4 times trailing sales. The 12-month median price forecast for ETSY stock stands at $203.
E-Commerce Stocks: Global X E-commerce ETF (EBIZ)
Current Price: $23
52-Week Range: $20.93 – $36.59
Expense Ratio: 0.50%
Our next discussion centers around an exchange-traded fund (ETF), namely the Global X E-commerce ETF. it provides exposure to global firms that operate e-commerce platforms, offer related software and services or sell goods and services online.
EBIZ, which has 41 holdings, tracks the Solactive E-commerce Index. The fund started trading in November 2018 and has $138 million under management. Consumer discretionary stocks dominate the fund with 68.8%, followed by information technology at 12.2% and communication services at 8.4%.
Meanwhile, 55.1% of the companies come from the U.S., followed by China at 25.7%, the U.K. at 6.7% and Argentina at 3.9%. The fund also features companies in Japan (3.6%) and Canada (3.5%).
The leading names on the roster include the online travel company Expedia (NASDAQ:EXPE), Chinese travel services provider Trip.com (NASDAQ:TCOM) and travel and restaurant online reservations heavyweight Booking (NASDAQ:BKNG).
Over the past year, EBIZ has lost 36% and hit a 52-week low in late February. As a result, the fund is also down 16% YTD. The recent sell-off in high-growth stocks in EBIZ has created an attractive risk/return profile for long-term investors. Its price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 28.2x and 1.5x, respectively.
52-Week range: $858.99 – $1,970.13
Mercadolibre is widely regarded as the Amazon of Latin America. Headquartered in Argentina, it runs the largest e-commerce marketplace in the region. The group connects a network of more than 130 million active users across 18 countries.
In 2020, e-commerce sales in Latin America grew 37% to $85 billion, making the region the fastest-growing e-commerce market globally. According to Americas Market Intelligence, e-commerce purchases in Latin America are expected to grow at a 29% compound annual growth rate (CAGR).
Mercadolibre recently made strategic investments in the 2TM Group and Paxos, revealing its increasing focus on crypto assets and blockchain technology. 2TM Group is the parent company of MercadoBitcoin, while Paxos is a blockchain company that offers crypto investments.
Management announced Q3 2021 metrics on Nov. 4. Net revenue increased 73% YOY to $1.9 billion. Net income came in at $95.2 million, or $1.92 per diluted share, compared to a net income of $15 million, or 28 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $1.4 billion.
MELI stock hit a new 52-week low on Feb. 24, down more than 50% from its 2021 high. It hovers around $1,135, down 16% YTD. Shares look like a bargain at just 8 times trailing sales, lower than where it was five years ago. The 12-month median price forecast for Mercadolibre stock is $1,600.
E-Commerce Stocks: RH (RH)
52-week range: $346.07 – $744.56
RH, formerly known as Restoration Hardware, is a luxury name in the home furnishing business with international expansion on deck. RH has opened nearly 70 RH Galleries (museum-style expansive stores) and has adopted a membership model. Buyers can place their orders in one of the company's galleries or online.
Buffett's Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) is a prominent investor. It first invested in RH in the third quarter of 2019, and continued to do so next quarter. Now it holds about 1.8 million shares, more than 8% of the retailer's outstanding shares.
RH has benefited from the recent boom in home prices and soaring spending on home furnishing. Its loyalty program has more than 400,000 members. The company plans to expand in the U.K., followed by France and Germany. Overall, management sees a $5 billion to $6 billion market opportunity in North America and at least a $20 billion global opportunity.
Management issued Q3 2021 metrics on Dec. 8. Net revenue increased 19% YOY to more than $1 billion. Adjusted net income surged to $209 million, or $7.03 per diluted share, compared to $166 million, or $6.20 per diluted share, a year ago. Cash and equivalents ended the period at $2.2 billion.
RH stock hovers around $406, down nearly 25% YTD. Shares are trading at their lowest valuation in over a year at 16.6 times forward earnings and 3.4 times trailing sales. The 12-month median price forecast for RH stock stands at $723.
Sea Limited (SE)
52-week range: $111.50 – $372.70
Based in Singapore, Sea Limited is one of the largest e-commerce companies in Asia. The company also operates other high-growth businesses, including financial technology (fintech) and gaming. Chinese tech giant Tencent (OTCMKTS:TCEHY) is a significant investor in the e-commerce group.
Sea Limited has introduced its most popular mobile game, Free Fire, to gamers in new territories, including India and Latin America. Once this popular game gained a foothold, the company launched its e-commerce platform Shopee and its digital payments solution platform Sea Money. The company utilized a land-and-expand strategy to gain market share.
SE released Q3 2021 results on Nov. 16. Revenue stood at $2.7 billion, up 122% YOY. The e-commerce segment generated $1.3 billion of its quarterly revenue, while the gaming segment grew by 93% YOY to $1.1 billion.
Net loss widened to $571 million, or 84 cents per diluted share, compared to $425 million, or 69 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the period at $12.5 billion.
SE is a volatile stock trading around $117, down 57% over the past year. Yet despite the drop in price, shares are by no means cheap, trading at 8.6 times trailing sales. The 12-month median price forecast for SE stock stands at $250. Interested readers should keep SE stock on their watchlist with a view to buy into further declines.
E-Commerce Stocks: Target (TGT)
52-week range: $166.83 – $268.98
Dividend yield: 1.8%
Our final name for today is Target, the prominent general merchandise retailer with more than 1,900 stores. Over the past few years, management has invested in robust omnichannel shopping capabilities. Many analysts point out its e-commerce features rival those of its larger competitors.
The retail giant released Q3 2021 results on Nov. 17. Total revenue soared 13% YOY to $25.7 billion. Net earnings came in at $1.49 billion, or $3.04 per diluted share, up from $1.01 billion in the previous year. Cash and equivalents ended the quarter at $5.8 billion.
Thanks to its online presence that grew significantly during the pandemic, in Q3 online sales soared 29%. Industry data suggest the rise in digital sales caused by the pandemic will likely become permanent. Therefore, Target investors should expect these metrics to at least stay stable.
Furthermore, the retailer's same-day delivery and in-store pickup services have become key growth drivers. Same-day services, which include curbside pickup service, drive up, in-store retrieval of orders and home delivery service Shipt, saw a 60% increase in revenue during the third quarter.
Target is also a Dividend King stock. The current quarterly payout of 90 cents generates a 1.8% dividend yield.
Currently, TGT stock exchanges hands around $224, up 19% over the past year. Shares have an attractive valuation at 15 times forward earnings and 1 times trailing sales. The 12-month median price forecast for Target stock stands at $280. Potential investors could consider hitting the "buy" button on TGT shares.
On the date of publication, Tezcan Gecgil 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.
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