Blog - Are These Two E-commerce Stocks Worth Buying Right Now?

Are These Two E-commerce Stocks Worth Buying Right Now?

Jun 17, 2019

E-commerce is the land of unlimited opportunity and has quickly become the common platform through which modern shopping gets done. The ecommerce market and companies in this space have enjoyed an upward trajectory for many years and their stocks have generated tremendous returns for their shareholders.

In this article I will be taking a deep dive into two leading e-commerce companies and analysing if their stocks are worth investing in right now.

SHOPIFY

NYSE: SHOP 

P/S: 25.46

YTD Performance: +103.99%

Shopify Inc is a Canadian company which provides cloud-based commerce platform designed for small and medium-sized businesses. Shopify has seen immense growth since its IPO generating stock gains of 964% over the last 4 years. The Company has over 800,000 business using its e-commerce platform, 70,000 retailers using it’s POS solution and to date it’s merchants have spent over $100M on it’s business app store. Shopify Inc. has a stellar 3-year revenue growth rate of 72.4% and is projecting to be profitable in 2020.

Exceptional Growth

The company’s subscription and merchant solutions (shipping/payments/capital) grew double-digit percentages in 2018. Monthly recurring revenue (MRR) in the last year was up by 36% year over year. Shopify capital has issued $87.8 million in merchant cash advances and loans in the first quarter of 2019 and grown to approximately $535 million since last quarter when it was just $107 million. The company plans on maintaining it’s growth by increasing the number of merchants using its platform and increasing revenue per customer by offering additional solutions to each of its clients.

The company currently expects revenues in the range of $1.48 billion to $1.50 billion with operating losses in the $130 million to $140 million range.

Stock Valuation

The company currently has a P/S ratio of 25.34 that is close to it’s 5 year high and much higher that it’s median P/S ratio of 14.75. When compared to other e-commerce stocks SHOP appears to be very overvalued:

undefined

BOTTOM LINE

With such stellar revenue growth Shopify should continue to perform in the long run however, I would advise to forgo investing at this stage as the company is very overvalued. The consensus 12-month price target of analysts is lower than current levels and with excessive P/S ratio there is too much downside for limited upside. With current stock market turbulence patience can provide investors a better buying opportunity in the coming quarters.

BABA

NYSE: BABA 

P/E: 30

YTD Performance: +8.89%

Alibaba Group Holding Limited, the Chinese multinational conglomerate holding company specializes in e-commerce, retail, internet and technology. Alibaba is the world’s largest online and mobile commerce company, measured by gross margin volume. The company operates China’s most-visited online marketplaces and has a growing digital media and cloud computing offerings. Alibaba has become a market behemoth growing their revenue to $56 billion or five times that of Ebay yet 4 times smaller than that of Amazon.

Exceptional Growth

In it’s last 3 fiscal years BABA revenue grew more than 254% while earnings grew138%. The company’s core e-commerce core business, Tmall continues to strengthen its market leadership in the B2C market. Tmall physical goods GMV grew 33% YOY for the last fiscal year. Revenue’s from China based core commerce was up 30% and international commerce sales was up 25%. Alibaba reported 654 million annual active consumers, representing an annual net increase of 102 million YOY.

Trade War effects

Alibaba dominates the massive e-commerce market in China with a 58% share, according to eMarketer. Since most of the company’s business is in China tariffs have sent the company’s shares crashing and the company’s stock is down 28.55% in the last year. The company’s P/E ratio is close to a 2-year low and is better than the industry average of 38.

Alibaba vs. Amazon

Amazon and Alibaba are the most powerful retail companies on the planet. The two companies dominate the multitrillion-dollar global e-commerce market. When comparing the financial performance of each company it is evident that Alibaba has a much more profitable business. BABA has revenue 4 times smaller than AMZN but the company earned an identical net income in the last fiscal year. The company also has a higher operating margin, better balance sheet, lower debt, and lower P/E when compared to its big rival.

BOTTOM LINE

The Chinese population is large and Chinese disposable income continues to increase making the company’s long-term prospects very favorable. The company is just starting its fast-growing businesses in areas such as mobile payments, digital advertising, and cloud computing and all of these segments should sustain its growth. BABA was in 117 hedge funds’ portfolios at the end of March and ranks 7th among the 30 most popular stocks among hedge funds at the moment.

CONCLUSION

I am currently building a position in BABA at current levels as I believe there is long-term upside offered by this stock. Analysts have a buy rating and a consensus price target of $219 representing a 46.98% increase from today’s closing price. I have added Shopify on my watch list because it has been a top performer, but it is just too overvalued to warrant an investment at current levels.

Original Article: https://smartmoneygains.com/sector-watch/are-these-two-e-commerce-stocks-worth-buying-right-now/