The 3 Most Undervalued E-Commerce Stocks to Buy Now: August 2023
The e-commerce industry has been able to transform many lives over the past decade. The Covid-19 pandemic became a significant catalyst in shifting consumers to primarily shopping for items online as many were forced to remain in their homes due to government enforced lockdowns. The rise of e-commerce stocks has seen extensive platforms like Amazon (NASDAQ:AMZN) has enabled billions of transactions by connecting millions of consumers to desired products. The industry is a part of the wider digital transformation effort to better connect merchants with consumers, and to offer more convenience, choice and personalization.
However, even with these positive tailwinds, not all e-commerce stocks are valued equally by the market. Some of them are trading at low multiples compared to their peers or their growth potential, making them attractive for investors who are looking for undervalued stocks. With that said, here are three of e-commerce stocks that you should consider buying for 2023.
Etsy (ETSY)
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Etsy (NASDAQ:ETSY) is an online marketplace that connects millions of buyers and sellers of handmade, vintage and creative goods. The company has a loyal and engaged customer base, with over 89.9 million active buyers and 5.9 million active sellers as of the first quarter of 2023. Etsy benefits from its unique product assortment, social features, community features and focus on sustainability and social responsibility.
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Etsy has been growing rapidly in recent years, driven by strong demand for its products amid the pandemic, as well as its strategic initiatives to improve its platform, expand its categories and acquire complementary businesses. In 2020, the company’s revenue more than doubled to $1.72 billion, while its net income surged to $349 million. In the first quarter of 2023, the company’s revenue increased by 11% year-over-year to $640.9 million, while its net income increased by 21% to $74.5 million.
Etsy is expected to continue its growth momentum in 2023, as it leverages its large and growing customer base, its diversified product offerings, its investments in technology and marketing and its acquisitions of Reverb and Depop. Reverb is a leading online marketplace for new, used and vintage musical instruments, while Depop is a popular app for Gen Z consumers to buy and sell unique fashion items. Ultimately, these acquisitions will help Etsy expand its addressable market while diversifying revenue streams.
Etsy’s stock valuation is attractive for a growing e-commerce platform. Shares are trading at 18.1x forward earnings and 5.9x forward sales. Therefore, Etsy is a buy for investors who are looking for a high-growth e-commerce stock with a differentiated value proposition.
Alibaba (BABA)
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Alibaba (NYSE:BABA) made it in my prior list for undervalued cloud computing stocks. The company low valuation also gives it a spot on this list. For those unfamiliar with the business, Alibaba happens to be the largest e-commerce company in China and one of the largest in the world. The company operates several online platforms that cater to different segments of the e-commerce market, such as Taobao, Tmall, AliExpress and Lazada. A variety of external factors have affected Alibaba’s shares, specifically anti-trust lawsuits and fines which composed an enormous part of the tech sector crackdown in China. Only up a meek 8% year-to-date, the value of BABA’s shares has also been negatively impacted by a sluggish economic recovery post-Covid-19. However, the company still has many strengths that make it an attractive investment opportunity.
Alibaba has a massive user base of over 1 billion annual active consumers across its e-commerce platforms. The company also has a diversified revenue mix that includes high-margin businesses like cloud computing and digital media. For example, even though e-commerce growth started out the year with unimpressive growth due to a lack of solid retail sales, Alibaba Cloud’s business reported record year-over-year EBITDA growth in the company’s Q2 earnings print.
BABA shares are trading around 7.5x forward EBITDA, which makes the company’s valuation relatively cheap compared to many tech stocks this year. Therefore, Alibaba is a buy for investors who are looking for dominant e-commerce stocks with global reach and a diversified business models.
Qurate Retail (QRTEA)
Source: Pavel Kapysh / Shutterstock.com
Qurate Retail (NASDAQ:QRTEA) is a leading video and online commerce company that markets and sells various consumer products primarily through merchandise-focused televised shopping programs, Internet and mobile applications. The company also operates several brands such as QVC, HSN, Zulily and Ballard Designs. Unfortunately, the e-commerce platform has been facing some headwinds in recent quarters, such as lower consumer spending, higher shipping costs, supply chain disruptions and increased competition. However, the company is taking several actions to improve its performance and profitability.
Qurate Retail is undergoing a strategic reorganization, called Project Athens, that aims to simplify its structure, streamline its operations, optimize its resources and enhance its customer experience. The company expects to generate $300 million to $400 million of annualized cost savings by 2024 through this initiative. The company is also investing in its digital capabilities, expanding its product categories, enhancing its programming and content and launching new marketing campaigns to attract and retain customers.
With that said, Qurate Retail’s stock trades at 4.7x forward earnings, and for investors looking to bet on a return-to-form, Qurate with its strong cash flow generation, could be a decent bet.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
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