E-commerce is being identified as a prime contributor to our current supply chain difficulties. Flush with cash during the pandemic, many Americans took to shopping online as part of their new normal. Demand quickly outpaced supply, particularly as many factories were dealing with labor shortages due to Covid-19 restrictions.
While that may oversimplify the problem with the global supply chain, there’s little doubt that e-commerce transactions have made an impact. In fact, e-commerce was one of the fastest-growing segments of the economy prior to the Covid-19 pandemic. It’s part of the continuing digitization of the economy. And that makes it a segment that investors can’t afford to ignore.
Just how much of an impact does e-commerce make? In 2020 alone, there were 454 billion transactions worldwide totaling $4.2 trillion in sales. But that only tells part of the story. As big as that number is, it makes up less than 20% (17.8%) of all retail sales worldwide. A large number of those transactions go through Amazon (NASDAQ: AMZN).
However, if you missed out on buying Amazon when it was still “just” an online bookseller, you may find a share price of over $3,000 per share a little tough to swallow. That’s why we’ve put together this special presentation. We’ve identified seven companies that are likely to perform well despite the current supply chain crisis and have business models that will be sustainable even when supply and demand get back into balance.
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- Etsy
- eBay
- Walmart
- Chewy
- Stitch Fix
- Shopify
- Square
#1 - Etsy (NASDAQ:ETSY)
One way to get around the supply chain is to reduce the number of links in the chain. And that’s where a company like Etsy (NASDAQ: ETSY) makes sense. Because it’s a peer-to-peer e-commerce site, it may be more appealing to consumers who want unique hand-crafted gifts that will arrive in a reasonable timeframe.
That opinion is shared by Needham analyst, Anna Andreeva, who believes, Etsy is well-positioned to capitalize on the supply chain disruption. Andreeva advised investors to buy ETSY stock on any post-earnings dip. One reason says Andreeva is that “…with 60% of sellers being domestic, we think ETSY’s model wins this Holiday season amidst supply chain disruption.”
ETSY stock is up over 700% since the onset of the pandemic. However, the pandemic seems to have merely acted as an accelerant. Etsy has been growing revenue at an impressive clip over the last three years. With the $532.4 million the company logged in the third quarter, it’s well on pace to eclipse the $2 billion mark this year. And the company is generating impressive free cash flow as its revenue grows.
About Etsy
Etsy, Inc, together with its subsidiaries, operates two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, and France. Its primary marketplace is Etsy.com that connects artisans and entrepreneurs with various consumers. The company also offers Reverb, a musical instrument marketplace; Depop, a fashion resale marketplace; and Elo7, a Brazil-based marketplace for handmade and unique items.
Read More - Current Price
- $56.81
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 13 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $63.17 (11.2% Upside)
#2 - eBay (NASDAQ:EBAY)
Another peer-to-peer e-commerce company that is set to shake off supply chain disruption is eBay (NASDAQ: EBAY). Before “traditional” e-commerce took off, eBay was generating interest from consumers who liked the company’s business model which focused on bidding on new and used merchandise.
ETSY stock has been on a tear in 2021. The stock price growth of 47.4% is more than double the growth of the S&P 500 index. But is such growth likely to continue? If you value the opinion of analysts, it just might. Since the company reported earnings on October 27, six analysts have boosted their price target for the stock. And in each case, the new price target is above the consensus price.
Revenue for the first three quarters of 2021 is only up about 4% from the first three quarters of 2020. However, earnings present a different story. The company’s EPS is already 10% higher than it was through the first three quarters of 2020. And the company is expected to grow EPS at a pace of 13% in 2022.
About eBay
eBay Inc, together with its subsidiaries, operates marketplace platforms that connect buyers and sellers in the United States, the United Kingdom, China, Germany, and internationally. The company's marketplace platform includes its online marketplace at ebay.com, off-platform businesses, and the eBay suite of mobile apps.
Read More - Current Price
- $65.01
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 16 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $62.63 (3.7% Downside)
#3 - Walmart (NYSE:WMT)
This list of e-commerce stocks wouldn’t be complete without giving a nod to the traditional retail channel. There are many attractive companies in this space including Target (NYSE: TGT) and Home Depot (NYSE: HD). Both companies were early adopters to the omnichannel model that has become essential to brick-and-mortar retail.
But with the combination of the supply chain crunch and inflation, it’s hard to overlook Walmart (NYSE: WMT). The company focuses on everyday low prices on essential items. This focus will serve the company well as consumers are likely to do whatever they can to stretch their dollars further.
WMT stock is flat for the year, but it’s up 16% from the low it hit after a selloff in March. As of this writing, the company has not reported its third-quarter earnings, but the stock has already received two boosted price targets in the last month and a strong earnings report will likely send the stock higher. And don’t forget that Walmart is also a Dividend Aristocrat having increased its dividend in each of the last 45 years.
About Walmart
Walmart Inc engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.
Read More - Current Price
- $92.24
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $93.69 (1.6% Upside)
#4 - Chewy (NYSE:CHWY)
Specialty e-commerce retailers present good opportunities among e-commerce stocks. And that’s the focus of our next two stocks. The first is Chewy (NYSE: CHWY). Pet care continues to be a growing industry. And Chewy is the place for consumers to get products from thousands of brands.
However, what analysts really love is the company’s subscription service that generates recurring orders for the essential items that pets need. That sticky revenue increased during the pandemic as many consumers began to try the company’s service for the first time.
CHWY stock is down 19.7% in 2021. However, it’s up nearly 10% since the selloff bottomed out in May. Many investors seemed to be concerned that Chewy might see declining revenue once the economy reopened. So far that doesn’t seem to be the case, and analysts give the stock a $99 price target which would be a 37% increase from the current stock price.
However, as I write this, the company is yet to report earnings. That will take place in December. Investors may want to wait to see what the company has to say about its ability to navigate the supply chain
About Chewy
Chewy, Inc, together with its subsidiaries, engages in the pure play e-commerce business in the United States. It provides pet food and treats, pet supplies and pet medications, and other pet-health products, as well as pet services for dogs, cats, fish, birds, small pets, horses, and reptiles through its retail websites and mobile applications.
Read More - Current Price
- $33.72
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $34.60 (2.6% Upside)
#5 - Stitch Fix (NASDAQ:SFIX)
The second specialty retailer on this list is Stitch Fix (NASDAQ: SFIX) which uses recommendation algorithms and data science to personalize clothing items based on the size, budget, and style of its customers.
The online curated clothes retailer saw sales increase in 2020 as work-from-home still meant having employees keep their wardrobe “video call” appropriate. The company also introduced features such as its “Freestyle” program that gave consumers more options to pick out their own selections. The company sees this service as being complementary to the “fixes” provided by its in-house stylists as they can use the customer data to minimize returns and increase the profitability of each shipment.
In fact, in late January 2021, SFIX stock had climbed 749% from its pandemic low of April 2020. However, the stock tumbled sharply shortly after that as investors realized they may have allowed the stock to get ahead of itself.
The long-term outlook for Stitch Fix remains strong. Analysts give SFIX stock a bullish price target of $83.26 that would be a gain of over 144.5% from the stock’s current price.
About Stitch Fix
Stitch Fix, Inc sells a range of apparel, shoes, and accessories for men, women, and kids through its website and mobile application in the United States and the United Kingdom. It offers denim, dresses, blouses, skirts, shoes, jewelry, and handbags under the Stitch Fix brand. The company was formerly known as rack habit inc.
Read More - Current Price
- $3.79
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $3.96 (4.5% Upside)
#6 - Shopify (NYSE:SHOP)
The growth of e-commerce has been a two-way street. On the one hand, you have an increase in consumer demand. But on the other hand, the pandemic gave many would-be entrepreneurs an opportunity to turn something that was previously a side hustle, or just an idea, into a full-fledged business.
In fact, according to the U.S. Census Bureau, a record number of new businesses - over 4.4 million were created in the United States in 2020 alone. And chances are, many of them have been using Shopify (NYSE: SHOP) to help their business grow.
Spotify cloud-based platform is growing in popularity and that’s reflected in the company’s financials. Through three quarters of 2021, Spotify has already eclipsed its revenue total for all of 2020, proving that it not only held onto its pandemic gains, it’s added to them. That’s one reason contributing to the 32% gain in SHOP stock this year, which outpaces the 23.8% growth in the S&P 500 Index.
About Shopify
Shopify Inc, a commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, Australia, China, and Latin America. The company's platform enables merchants to displays, manages, markets, and sells its products through various sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces; and enables to manage products and inventory, process orders and payments, fulfill and ship orders, new buyers and build customer relationships, source products, leverage analytics and reporting, manage cash, payments and transactions, and access financing.
Read More - Current Price
- $108.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $99.03 (9.1% Downside)
#7 - Square (NYSE:SQ)
Another factor driving the growth of e-commerce is the growth of financial technology (fintech) companies that give businesses and consumers a different way to accept and receive digital payments. This brings us to Square (NYSE: SQ).
For those unfamiliar with Square it’s a financial service and mobile payment platform that offers a suite of business management tools. This includes the popular point-of-sale system that makes it easy for brick-and-mortar businesses to accept digital payments. The company has expanded to the consumer side with its CashApp that facilitates peer-to-peer lending and offers some additional e-commerce features.
And earlier in 2021, Square launched Square Banking that allows it to offer traditional banking products that could allow it, in theory, eliminate the need for Square customers to have a separate bank account.
Several analysts have lowered their price target for SQ stock since the company’s recent earnings report. However, the long-term outlook for the stock remains favorable with analysts giving the stock an upside of more than 32% from its current level.
About Block
Square, Inc provides payment and point-of-sale solutions in the United States and internationally. The company's commerce ecosystem includes point-of-sale software and hardware that enables sellers to turn mobile and computing devices into payment and point-of-sale solutions. It offers hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts EMV® chip cards and Near Field Communication payments; Chip card reader, which accepts EMV® chip cards and enables swiped transactions of magnetic stripe cards; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; and Square Register that combines its hardware, point-of-sale software, and payments technology, as well as managed payments solutions.
Read More - Current Price
- $89.65
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 26 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $96.33 (7.5% Upside)
As earnings season is showing us, many retailers are acknowledging that the supply chain difficulties aren’t going away anytime soon. And the effects will be felt well into 2022. At the same time, e-commerce transactions will only continue to make up a higher percentage of retail sales.
That’s creating a dynamic of two dynamic forces. And that has the potential to make the companies in this presentation more attractive as investors seek to find winners in a sector that’s too big to ignore.
If you’re looking for broader exposure to e-commerce stocks you may want to consider investing in an e-commerce exchange-traded funds (ETFs). These funds give you exposure to a range of companies in a broad spectrum of industries. Some strong performers in 2020 include the Amplify Online Retail ETF (NYSEARCA: IBUY), the ProShares Online Retail ETF (NYSEARCA: ONLN), and the Invesco NASDAQ Internet ETF (NASDAQ: PNQI).
MarketBeat All Access subscribers can track these and other ETFs with our proprietary ETF Screener tool.
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