The closure of physical stores during the worst of the COVID-19 pandemic accelerated e-commerce sales, very quickly making it the backbone of the retail sector. Multi-channel inventory management, tracking of shipments, contactless delivery services, and personalized shopping experiences in accordance with changing consumer tastes have allowed e-commerce companies to generate huge profits since the onset of the pandemic. The global e-commerce market is expected to grow at a 29% CAGR to $10.87 trillion by 2025.
However, record-high inflation and growing labor and supply chain constraints are forcing e-commerce companies to hike product prices to offset rising input costs. This, combined with volatility in the markets, could lead to a price retreat by overvalued e-commerce stocks in the near term.
We think e-commerce stocks Shopify Inc. (SHOP), Sea Limited (SE), Etsy, Inc. (ETSY), Chewy, Inc. (CHWY), and The RealReal, Inc. (REAL) look overvalued at the current price levels, considering their bleak growth prospects. So, these stocks are best avoided now.
Shopify Inc. (SHOP)
Based in Ottawa, Canada, SHOP provides a cloud-based, multi-channel commerce platform that is designed for small- and medium-sized businesses internationally. The company offers a platform that enables merchants to create an omnichannel experience to manage products and inventory, process orders and payments, ship orders, build customer relationships, leverage analytics and reporting, and access financing.
On Nov. 8, 2021, SHOP’s Shopify Plus platform selected Rebuy, a no-code omnichannel personalization platform for e-commerce brands on Shopify, to join the Certified App Partner program. Rebuy’s personalization, marketing, retention services, white-glove support, and a custom shopping cart should enable SHOP to help its merchants improve the shopping experience.
SHOP had $2.19 billion in cash and cash equivalents as of Sept. 30, 2021, indicating a 19% decline from the end of fiscal 2020. The $1.28 consensus EPS estimate for its fiscal 2022 first quarter, ending March 31, 2022, represents a 36.4% decline from the prior-year period. Over the past month, the stock has declined 36.6% in price to close yesterday’s trading session at $964.24.
In terms of forward EV/Sales, SHOP is currently trading at 22.53x, which is 505.1% higher than the 3.72x industry average. And in terms of forward Price/Book, SHOP is currently trading at 9.50x, which is 87.5% higher than the 5.06x industry average.
SHOP’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
SHOP has a D grade for Value, Growth, and Stability. To see additional POWR Ratings for SHOP’s Sentiment, Quality, and Momentum, click here.
Of 35 stocks in the F-rated Internet - Services industry, SHOP is ranked #31.
Sea Limited (SE)
Headquartered in Singapore, SE operates digital entertainment, e-commerce, and digital financial service businesses named Garena, Shopee, and SeaMoney, internationally. The company’s Shopee e-commerce platform offers product assortment, integrated payment and logistics infrastructure, and seller services. Its SeaMoney digital financial services also offer payment processing services for Shopee.
SE’s operating loss for its fiscal 2021 third quarter, ended Sept. 30, 2021, was $458.56 million, representing a 50.1% rise from the prior-year period. While its net loss increased 34.3% year-over-year to $570.98 million, its loss per share increased 21.7% to $0.84. As of Sept. 30, 2021, the company had $11.13 billion in cash and cash equivalents.
Analysts expect the company’s EPS to remain negative in its fiscal 2022 first quarter, ending March 31, 2022. It missed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 37% to end yesterday’s trading session at $150.31.
SE’s 7.30x forward EV/Sales is 206.9% higher than the 2.38x industry average. In terms of forward Price/Book, SE is currently trading at 13.12x, which is 433.7% higher than the 2.46x industry average.
SE’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. SE has a D grade for Value, Stability, Sentiment, and Quality. Click here to see the additional ratings for SE’s Momentum and Growth. Among the 77 stocks in the F-rated Internet industry, SE is ranked #72.
Etsy, Inc. (ETSY)
Brooklyn, N.Y.-based ETSY operates two-sided online marketplaces, Etsy.com and Reverb.com, that connect buyers and sellers worldwide. The company also provides Etsy Payments, a payment processing service, Etsy Ads, an advertising platform, and Etsy Shipping Labels, which allows sellers to purchase discounted shipping labels.
On July 13, 2021, ETSY acquired Depop, a London-based peer-to-peer social e-commerce company, for approximately $1.63 billion. The acquisition should extend ETSY’s opportunities in the high-frequency apparel sector, specifically in the fast-growing resale space serving Gen Z consumers.
For its fiscal 2021 third quarter, ended Sept. 30, 2021, ETSY’s operating income decreased 29.1% year-over-year to $83.74 million. Its net income was $89.93 million for the quarter, representing a 2% decrease from the prior-year period. Its EPS decreased 11.4% year-over-year to $0.62. The company had $619.40 million in cash and cash equivalents as of Sept. 30, 2021, down 50.2% from the end of fiscal 2020.
Analysts expect the company’s EPS to be $6.92 for its fiscal year 2022, ending March 31, 2022, representing a 15% decline from the prior-year period. Over the past month, the stock has gained 34.2% in price and ended yesterday’s trading session at $157.08.
ETSY’s 8.71x forward EV/Sales is 583.8% higher than the 1.27x industry average. In terms of forward Price/Book, ETSY is currently trading at 29.48x, which is 899.4% higher than the 2.95x industry average.
ETSY’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. ETSY has an F grade for Value and a D grade for Growth, Stability, and Sentiment. Click here to see more of ETSY’s component grades. ETSY is ranked #54 in the Internet industry.
Chewy, Inc. (CHWY)
CHWY operates an online platform that sells pet food, supplies and medications, and other pet-related products worldwide. The Dania Beach, Fla.-based company serves its customers through its www.chewy.com retail website and mobile applications.
On Dec. 7, 2021, CHWY partnered with Trupanion, Inc. (TRUP), an industry leader in pet medical insurance, to offer an exclusive suite of pet health insurance and wellness plans for accidents, illnesses, and chronic conditions to CHWY customers. This should enable CHWY to offer affordable and high-quality pet health care and witness high demand in the coming months.
For its fiscal 2021 third quarter, ended Oct. 31, 2021, CHWY’s loss from operations came in at $31.93 million, representing a 1.2% year-over-year decline. The company’s adjusted net loss was $13.13 million for the quarter, indicating a 69.2% rise from the prior-year period. Its adjusted loss per share increased 50% year-over-year to $0.03. And the company had $726.92 million in cash and cash equivalents as of October 31, 2021.
The consensus EPS estimate for its fiscal 2023 first quarter, ending April 30, 2022, is expected to remain negative. It missed the Street’s EPS estimates in two of the trailing four quarters. Over the past month, the stock has declined 26.8% in price and closed yesterday’s trading session at $47.61.
In terms of forward EV/Sales, CHWY is currently trading at 2.02x, which is 58.7% higher than the 1.27x industry average. And in terms of forward Price/Book, CHWY is currently trading at 423.94x, which is 14271.4% higher than the 2.95x industry average.
CHWY’s POWR Ratings are consistent with this bleak outlook. The stock has an F grade for Sentiment and a D grade for Value, Growth, and Stability.
In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for CHWY’s Quality and Momentum here. CHWY is ranked #53 of 65 stocks in the D-rated Consumer Goods industry.
The RealReal, Inc. (REAL)
REAL in San Francisco operates an online marketplace for consigned luxury goods worldwide. The company offers various product categories for women, men, and kids; jewelry; watches; and home and art products.
In its monthly update, REAL’s 2021 December gross merchandise value (GMV) was approximately $153 million, indicating a 40% rise from the prior-year period. The company’s December average order value (AOV) was roughly $518, up 10% from the year-ago period.
REAL’s loss from operations for its fiscal year 2021 third quarter, ended Sept. 30, 2021, increased 22.9% year-over-year to $51.16 million. The company’s non-GAAP net loss came in at $43.52 million, representing a 20.4% decline from the prior-year period. Its non-GAAP loss per share increased 14.6% year-over-year to $0.47. As of Sept. 30, 2021, the company had $444.81 million in cash and cash equivalents.
Analysts expect the company’s EPS to remain negative in its fiscal 2022 first quarter, ending March 31, 2022. It surpassed the consensus EPS estimates in two of the trailing four quarters. Over the past month, the stock has retreated 25.6% in price to close yesterday’s trading session at $9.45.
REAL’s 1.80x forward EV/Sales is 41.4% higher than the 1.27x industry average. In terms of forward Price/Book, REAL is currently trading at 9.95x, which is 237.3% higher than the 2.95x industry average.
REAL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
The stock has a D grade for Value, Sentiment, Stability, and Quality. Click here to see the additional ratings for REAL’s Growth and Momentum. Among the 76 stocks in the A-rated Fashion & Luxury industry, REAL is ranked #68.
SHOP shares were trading at $949.88 per share on Tuesday morning, down $14.36 (-1.49%). Year-to-date, SHOP has declined -31.04%, versus a -5.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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