In the first quarter of 2023, e-commerce sales accounted for 15.1% of total retail sales, up from a mere 5.6% in the same quarter a decade ago. As the world continues to embrace digital transformation and convenience becomes more important, pure-play e-commerce companies will be the largest beneficiaries, and their stocks have the potential to deliver life-changing returns for investors.
According to analysts, the following three e-commerce stocks have upsides ranging from 25-80%.
Etsy (NASDAQ:ETSY)
Etsy is the world's leading marketplace for handmade and unique goods. The company also owns Reverb, an online marketplace for musical instruments, elo7, dubbed "the Etsy of Brazil," and depop, a fashion resale marketplace aimed at the Gen Z audience. Collectively, Etsy's family of brands connects more than 95 million buyers and 7.5 million sellers across nearly every country in the world.
It's been a rough start to the year for Etsy's stock, falling more than 25% over the first five months of 2023. However, analysts do not think the current price reflects the company's actual value, as the average analyst price target sits at $125.76, reflecting over 50% upside from today's level. As a result, Etsy is rated as a Moderate Buy based on 12 Buys, five Holds, and one Sell.
Etsy's valuation supports analysts' expectations, as it trades near its lowest valuation in recent years, including just 16.1 times its trailing-12-month free cash flow of $649.97 million.
It's also worth noting that Etsy debuted a wedding registry feature on its namesake website in early May, which is likely the first of many registry types that it will launch and could be a key driver of sales growth going forward.
Chewy (NYSE:CHWY)
Chewy is the largest pure-play e-commerce company in the pet space, with more than 20 million active customers and net sales that exceeded $10 billion in Fiscal Year 2022. Chewy essentially followed the Amazon (NASDAQ:AMZN) playbook to dominate the pet industry, expanding its offerings to more than 110,000 products while launching private brands, all with ultra-important fast shipping times of just 1-2 days.
It's been a relatively uneventful year so far for Chewy as its stock is up just over 2%, and most of this gain has come in the last week thanks to a rally of over 20% after its strong first-quarter earnings results. Analysts still see significant upside from here, as the average analyst price target is currently $45.44, representing an increase of more than 25% from today's levels. Therefore, Chewy is rated as a Moderate Buy based on 13 Buys, six Holds, and zero Sells.
The most exciting part about the investment case for Chewy is this - it’s a recurring revenue business. What? How could this be? It’s not a software business. No, it’s not, but it’s a largely subscription service nonetheless.
For the 13-week period that ended April 30, 2023, $2.08 billion of Chewy's $2.78 billion in sales were to autoship customers, representing an incredible 74.7%. Autoship at Chewy is just like Subscribe & Save at Amazon, allowing pet owners to schedule recurring shipments of their pet’s food and supplies to save time and money. Annualizing the current rate out, Chewy's stock trades at less than two times its autoship sales for Fiscal Year 2023.
Sea Limited (NYSE:SE)
Sea Limited is a global consumer internet company headquartered in Southeast Asia but with operations around the globe. Its three core businesses are Garena, a global gaming company, Shopee, the largest pan-regional e-commerce platform in Southeast Asia and Taiwan, and SeaMoney, a digital payments and financial services provider in Southeast Asia.
Sea was one of the market’s darlings during the pandemic-induced rally in 2020 and early 2021, but it gave up most of those gains in the second half of 2021 and 2022. However, it has posted a respectable performance in 2023 with a return of nearly 10%. While 10% is pretty good, analysts think this is just a drop in the bucket compared to where it could be in the not-so-distant future, as the average analyst price target currently sits at $102.44, representing an upside of over 80% from today’s prices. As a result, SE stock is rated as a Strong Buy based on 14 Buys and three Holds.
While Sea may be remembered as one of the market’s great growth stories, those days are behind it, for now. Focusing on growth worked when all investors cared about was top-line growth, but profitability is much more important in times of economic uncertainty like we are in now. Sea recognized this and began focusing on reducing expenses, including shutting down Shopee’s operations in France, Argentina, and Poland. These moves have led to two consecutive quarters of positive net income.
Sea’s stock finds itself in a situation where growth investors are turned off, and value investors don’t have enough to work with yet, so it could take time to see its stock reflect the actual value of its businesses. But, as we all know, fortune favors the patient.
Closing Thoughts: E-commerce is an Attractive Investment Trend
E-commerce is a very attractive long-term investment trend that investors simply cannot ignore. While there are numerous ways to play this trend in the years ahead, analysts see Etsy, Chewy, and Sea as ways to benefit in both the short and long term.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
