Company / Analytics

Analytics, 20 August 2021

Ten E-commerce stocks that are undervalued

Inevitably, e-commerce has become one of the main drivers of the world economy in recent years. Data from New York-based market research firm eMarketer, notes that e-commerce sales across the world rose over 25% in 2020, influenced by the COVID-19 pandemic but continuing a growth trajectory that preceded the pandemic, to more than $4 trillion. This trend is expected to continue, with global e-commerce sales expected to rise to 17% to reach $5 trillion this year (2021).

While e-commerce companies such as Amazon and Alibaba – the world’s largest e-commerce platforms – have benefited from this boom, and have attracted investor attention, there are other e-commerce stocks with upside potential but are currently undervalued.

1. Sea Limited

Sea Limited operates from Singapore and owns and runs an e-commerce platform named Shopee. The stock is one of the best to buy and hold. The company has increased revenue by 101% last year and forecast a 90% growth for this year.

Sea Limited controls a large marketplace that is home to around 614 million, making it one of the most lucrative e-commerce companies in the world. The region, according to the Asia Development Bank, generates 32% of the world’s GDP and is projected to increase this share to over 50% by 2050. The firm also has a large institutional investor base, shielding it from possible volatility associated with other growth offerings.

On August 16, investment advisory Cowen maintained an Outperform rating on Sea Limited stock and raised the price target to $345 from $280, noting that the firm was expanding into South America and had strong growth forecasts despite tough competition. At the end of the first quarter of 2021, 98 hedge funds held stakes worth $10.4 billion in Sea Limited, down from 115 the preceding quarter worth $10.8 billion.

2. Shopify Ltd

Shopify Inc. owns and runs an e-commerce platform and is headquartered in China. Market experts have underlined a bullish thesis for the company in recent times with one expert noting that the gross profits for the firm were growing rapidly and the company was poised for revenue growth based on a plan to better host underserved merchants.

Shopify was second to Amazon in terms of overall e-commerce market share in the US with an 8.6% stake in the internet retail sector. In July, investment advisory Morgan Stanley reiterated an Equal Weight rating on Shopify Inc. stock and raised the price target to $1,500 from $1,400, noting that the firm was slated for growth amid strong positioning and expanding solutions.

Connecticut-based investment firm Lone Capital is a leading shareholder in Shopify Inc. with 1.7 million shares worth more than $1.8 billion.

3. JD.com

JD.com is a China-based e-commerce operator and retail infrastructure provider. According to Steven Fiorillo, a finance expert focused on growth portfolios, the company is the ‘Amazon of China’ and one of the best plays for the expanding Chinese economy. The expert underlined the explosive growth potential of the firm in coming years evidenced by the running of 1,000 warehouses and the recent shattering of the $100 billion revenue mark.

On July 27, investment advisory Mizuho maintained a Buy rating on JD.com, Inc. stock and affirmed that a crackdown in China on online education firms was unlikely to affect other sectors of the market.

New York-based investment firm Tiger Global Management LLC is a leading shareholder in the firm with 51.6 million shares worth more than $4.3 billion.

4. MercadoLibre, Inc

MercadoLibre, Inc. is an Argentina-based firm that owns and runs online commerce platforms. The company is poised to grow as internet penetration and digital payments increase in Latin America.

Analysts believe the company is ahead of competitors like Amazon and Sea Limited in Latin America because it operates in an ecosystem that it is familiar with, given the political uncertainty in the region and the market share it presently commands. MercadoLibre’s website was the 10th most visited in Brazil, the largest market in Latin America, behind only social media applications.

On August 5, investment advisory Credit Suisse maintained an Outperform rating on MercadoLibre, Inc. stock and raised the price target to $2,100 from $2,050, noting that the pandemic tailwinds for the firm were persisting.

At the end of the first quarter of 2021, 69 hedge funds held stakes worth $5.2 billion in MercadoLibre, Inc., down from 79 in the previous quarter worth $8.7 billion.

5. Etsy, Inc.

Etsy, Inc. is headquartered in New York and operates online marketplaces that connect sellers with buyers. These include Etsy and Reverb. The firm markets 85 million items through different retailers on the platforms.

Etsy has grown into a sizable business in the niche market it operates, returning more than 1,200% to investors over the past five years and outperforming the broader market.

On July 7, investment advisory Needham initiated coverage of Etsy, Inc. stock with a Buy rating and a price target of $250, underlining that the firm was one of the best growth ideas in the coverage with long-term sales growth expected.

The company’s fourth-quarter results provided numerous data points that highlight Etsy’s success in both broadening and deepening the relationship it has with buyers and sellers on its platform. In fact, Etsy now stands as the fourth largest e-commerce site in the U.S. Repeat buyers have grown nearly 100% year-over-year, despite mask sales, which grew rapidly at the onset of the pandemic, shrinking to less than 5% of sales.

New York-based investment firm Renaissance Technologies is a leading shareholder in Etsy, Inc. with 2.3 million shares worth more than $465 million.

6. Chewy, Inc.

Chewy, Inc. is headquartered in Florida and operates an online marketplace for pet products. It markets more than 70,000 products from around 2,500 partner brands.

Analysts note that the company is continuing to make positive strides and improving overall profitability. The stock maintains a competitive entry point for investors who wanted to consider owning it.

Many families and individuals have adopted pets while spending more time at home, and more than 85 million US households have pets. In 2015, roughly 7% of pet products in the U.S. were bought online. By 2019, that number had increased to 22%. 72% of pet owners made at least one online purchase for their pets in the past 12 months and 39% of those were subscription-based purchases.

Chewy is the largest pure-play pet “e-tailer” in the world, offering “the personalized service of a neighborhood pet store combined with the convenience and speed of e-commerce.” The company was founded in 2011 and was bought by PetSmart in 2017, for $3 billion.

On August 4, investment advisory Credit Suisse initiated coverage of Chewy, Inc. stock with an Outperform rating and a price target of $121. Chicago-based investment firm Citadel Investment Group is a leading shareholder in Chewy, Inc. with 1.3 million shares worth more than $113 million.

7. Qurate Retail, Inc.

Qurate Retail, Inc. (NASDAQ: QRTEA) is a Colorado-based company that engages in online commerce activities.

Khaveen Investments, a hedge fund focusing on investments in technology stocks, believes the stock is underpriced by 373% and has adapted well from teleshopping to digitization. The fund cited the lean business model, low capex requirements, positive cash flows, and partnerships with emerging brands as some of the growth catalysts for the company.

In April, investment advisory Bank of America initiated coverage of Qurate Retail, Inc. stock with a Buy rating and a price target of $26. Earlier in February, DA Davidson had also mentioned several growth catalysts for the company in a rating update.

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Lyrical Asset Management is a leading shareholder in Qurate Retail, Inc. with 13.8 million shares worth more than $162 million.

8. Ozon Holdings PLC

Ozon Holdings is a Cyprus-based company that owns and runs an online retailer that markets multi-category consumer products primarily in Russia. The firm has long-term growth potential given that the e-commerce market in Russia is still in its early stages and is projected to grow rapidly in the next five years.

Ozon Holdings is a leader in this market and looks set to sustain this growth. The company’s fintech and logistics sectors are also expected to help the company capture greater market share in the coming years.

On June 28, investment advisory HSBC reiterated a Buy rating on Ozon Holdings stock and raised the price target to $73 from $65, underlining that the e-commerce business was growing in Russia and would benefit the firm.

Chicago-based investment firm Driehaus Capital is a leading shareholder in Ozon Holdings PLC with 901,074 shares worth more than $50 million.

9. Baozun Inc.

Baozun Inc. operates from Shanghai and provides e-commerce solutions to brand partners. Baozun Inc. is different from other retail chains since it also markets IT solutions, online store operations, digital marketing, customer services, warehousing, and fulfillment to partners.

Analysts believe investors should take note of the stock that is trading at ridiculous multiples amid a broader drawdown in Chinese stocks that have forward PE ratios of between 2-10. Sismanis highlighted the robust first-quarter results of the firm and underlined that the market would eventually be forced to recognize the profitability potential of stocks like Baozun Inc.

On June 9, investment advisory JPMorgan initiated coverage of Baozun Inc. stock with an Overweight rating and a price target of $45, noting that the firm was one of the leading e-commerce brands in China and had a competitive advantage to secure growth.

At the end of the first quarter of 2021, 11 hedge funds held stakes worth $41 million in Baozun Inc., down from 14 the preceding quarter worth $82 million.

10. Meituan

Meituan is based in China and operates an online platform that connects merchants with buyers. The firm is one of the largest Chinese firms listed in the US in terms of market capitalization. It aspires to be the Amazon of Services. Meituan has tremendous growth potential since it leads the food delivery, consumer products, retail services, and social commerce businesses in the massive Chinese market.

In earnings results for the first quarter, posted on May 28, Meituan reported revenue of more than RMB37 billion, up over 121% compared to the revenue over the same period last year.

Meituan was founded in 2003 and has a market cap of over $180 billion. It posted more than $17.4 billion in revenue last year.

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