Newegg Shares Dropped 9% on Thursday. Is it Time to Buy NEGG?
Newegg Commerce, Inc. (NEGG) shares dropped 9% on Thursday.
At this point, NEGG stock is down 38% so far in 2022 and is off its 2021 all-time high close by over 90%.
NEGG has become a meme stock, making it very volatile, but the company’s business has been solid for years and the current price offers a long-term growth opportunity.
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So far, 2022 has tested the nerves of many investors. Stocks that had been on a roll for years hit a brick wall. Even the tech stocks that have been the go-to for growth investors have struggled. Newegg Commerce, Inc. (NASDAQ:NEGG) has been no exception. However, in the case of NEGG stock, you can add the volatility of being a meme stock to the mix.
That volatility was in full effect over the past month. NEGG stock jumped 43% in a single session near the end of March. In early April, there was a single-day gain of 27%. On Thursday, NEGG dropped by 9%. The closest thing to a rational explanation for this erratic behavior is the company’s upcoming earnings release. But there has been a healthy dose of meme madness, as well.
The question is, with NEGG stock’s latest tumble, is now the time to make a move and buy shares?
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Newegg Commerce, Inc. | $6.58 |
Short-Term Challenges, But a Proven Business Model
Let’s try to take the meme factor out of the equation for a deeper dive on the company. California-based Newegg has been selling PCs, PC components and accessories, and consumer electronics online for over two decades. The company was founded in 2001. It became not just a favorite of many PC owners, but also something of an e-commerce pioneer.
For example, in 2010, Newegg launched an online marketplace for third party vendors. It followed that up in 2013 with a “Shipped by Newegg” fulfillment service, which was made available to those marketplace vendors. The company beat other major consumer electronics-focused retailers to the move.
Last August, Newegg reported numbers for the first half of its fiscal 2021 and they showed the strength of the business. Compared to the first half of 2020, net sales were up 39.9% to $1.2 billion. Net income was up 14% to 5 cents per diluted share. The company counted 4.2 million unique active customers, a 32.5% repeat purchase rate and an average order value of $359. In September, the company announced full-year revenue was on track to hit $2.4 billion.
The primary business concern facing Newegg and its shareholders is the global semiconductor shortage. Virtually everything Newegg sells has chips in it. That can cause wild fluctuations in NEGG stock — both positive and negative. Last July, NEGG stock shot up nearly nearly 150% because it was the only online retailer to have popular graphics cards in stock. The positives like this are outweighed by negatives, though. When computers, TVs, or hard drives are out of stock because of shortages, Newegg revenue takes a hit. However, the semiconductor shortage is finite. It may take a while yet, but it will end.
Added Volatility for Newegg
In a few years, these should be non-issues. But right now, you can’t talk about NEGG stock without acknowledging two key factors that are causing a high degree of volatility.
First, Newegg just went public last May after a reverse merger with China’s Lianluo Smart Limited. That came with ripple effects as the market tried to take the measure of the new company. We’re still waiting for Newegg to release its first full-year earnings report — something that should happen any day now.
The second factor is that NEGG quickly became a meme stock. The company is beloved by many long-term PC buyers and it also accepts various cryptocurrencies for payment. It is seen as an alternative to e-commerce giants. It was probably inevitable that NEGG stock would join the ranks of popular meme stocks. As we’ve seen, that meme stock status adds a huge degree of volatility to NEGG stock, with wild swings that often have no apparent cause. At least, no apparent business-related cause.
Bottom Line: Should You Buy NEGG Stock?
At this point, NEGG stock earns a respectable “B” in my Portfolio Grader. Newegg is an established e-commerce company with a proven business model and millions of loyal customers. Since going public, the limited financial data released has been encouraging. The problem is the volatility.
Currently, NEGG stock is above 2022 lows, but still down 38% for the year. That is probably a sweet spot for picking up shares with long-term growth in mind. The next big catalyst may be the company’s full-year fiscal 2021 earnings, which are expected shortly. Then again, with a meme stock, those big moves often have no basis in business-related news. So, you need to be prepared to ride out short-term volatility.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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