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The covid-19 pandemic caused a significant shift in industry trends. Businesses with online presence flourished, with social distancing being a necessity. It’s not surprising that e-commerce stocks surged in the rally after March 2020.
However, the rally in most e-commerce stocks was overdone. With slower growth expected after the pandemic, e-commerce stocks have witnessed a deep correction. Other reasons for correction in e-commerce stocks include cash burn and increased competitiveness. Specific to China, regulatory headwinds have impacted growth.
With several e-commerce stocks trading at a significant discount after a deep correction, it might be a good time to accumulate. Over the next few years, online shopping will continue to gain traction. Further, there is ample scope for growth and penetration in emerging markets.
It’s also worth noting that big e-commerce companies have demonstrated the capability to deliver robust free cash flows. The relatively smaller companies are also positioned as long-term value creators with operating leverage.
E-Commerce Stocks to Buy Now
Top 4 E-Commerce Stocks to Buy Now at a Big Discount
Investors with a long-term horizon can consider these four e-commerce stocks.
In May 2022, Coupang (NYSE: CPNG) stock slipped to lows of $9.0. A sharp reversal rally has resulted in an upside of 90% from oversold levels. However, CPNG stock trades significantly below its 52-week highs of $40. The undervalued e-commerce stock will likely continue to trend higher in the coming quarters.
For Q1 2022, Coupang reported revenue of $5.1 billion, which was higher by 22% on a year-on-year basis. Particularly, the company’s adjusted EBITDA losses narrow. If margin improvement sustains, CPNG stock will remain in an uptrend.
It’s worth noting that Coupang has guided for a long-term adjusted EBITDA margin in the range of 7% to 10%. The company expects product commerce adjusted EBITDA to be positive by Q4 2022. With these positive catalysts, the worst for the stock seems to be over.
Coupang still has a big addressable market within Korea. Furthermore, the company has international expansion plans. With a total cash buffer of $3.4 billion, the company is positioned for aggressive investments to maintain top-line growth.
Pinterest (NYSE: PINS) stock has remained downtrend with a deep correction of 77% in the last 12 months. There certainly seems to be value in the stock that trades at a forward price-to-earnings ratio of 20.5.
Relatively slow top-line growth and a decline in active users have been a concern. However, this was expected with online activity declining after the pandemic triggered social distancing. Beyond this, there are several positives for Pinterest.
First and foremost, Pinterest has an average revenue per user of $4.98 in the US and Canada. However, the ARPU for the rest of the world (excluding Europe) is just eight cents. There is ample scope for ARPU growth in emerging markets. This is likely to translate into an upside in cash flows.
Furthermore, Pinterest is focused on making shopping seamless using the platform. Pinterest will likely be a significant proxy e-commerce platform with a global presence in the next few years. As active users trend higher in the long-term, advertising revenue will likely remain robust.
Pinterest also has a strong balance sheet, and the cash buffer can be utilized for product development. At the same time, acquisitions to boost growth also seem likely.
Therefore, PINS stock is worth considering after a significant correction. The stock is attractively valued even with concerns related to a decline in users.
3. Sea Limited
Southeast Asia is another big market for e-commerce in the coming decade. It’s not surprising that Sea Limited (NYSE: SE) has delivered stellar top-line growth in the region.
However, SE stock has plunged by 75% in the last 12 months. The biggest reason for the decline is a sustained cash burn in the e-commerce segment. However, positive EBITDA from the digital entertainment division has primarily offset the losses.
The markets will continue to focus on e-commerce margin development. Even after some deceleration, top-line growth has remained attractive.
In terms of positives, the company reported cash and equivalents of $8.8 billion for Q1 2022. There is ample financial flexibility to pursue aggressive growth. Sea Limited has also focused on cost-cutting, which will likely translate into narrow EBITDA losses for the e-commerce division.
A slowdown or de-growth in active users is expected in the digital entertainment division. However, the paying user ratio has improved in Q1 2022 compared to Q1 2020. If ARPU growth across segments remains positive, it will boost margins and the cash flow potential.
Overall, SE stock seems to be undervalued after a significant correction. A reversal rally from current levels is on the cards.
Due to regulatory headwinds, Chinese e-commerce stocks have faced an extended period of challenge. However, if there were one stock to pick from the Chinese e-commerce segment, it would be JD.com (NASDAQ: JD).
Over 12 months, JD stock has declined by just 2%. Alibaba Group (NYSE: BABA) declined by 47% during the same period. The outperformance will likely continue for JD stock.
One reason to like JD.com is the company’s cash flow generation potential. JD.com reported a free cash flow of 27.2 billion renminbi for the trailing twelve-month period. Robust cash flows allow the company to make significant investments in emerging sectors.
Specific to e-commerce, JD.com possibly has the best logistics network in China. The company has 1,400 warehouses with coverage across all counties and districts. This has helped JD.com penetrate lower-tier cities and ensure growth.
It’s also worth mentioning here that JD.com also has a presence in Southeast Asia. While the market is competitive, there is ample scope for growth in the coming years. With a strong balance sheet, the company is positioned to benefit.
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