These undervalued e-commerce stocks have steady revenue growth with EBITDA margin expansion on operating leverage
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E-commerce stocks were among the hottest names to buy during the pandemic. As online shopping surged, some of the best e-commerce stocks traded at rich valuations. However, the tables turned in a post-pandemic world and with downward growth adjustments, e-commerce stocks plunged. As always, markets tend to react to the extremes and e-commerce stocks now seem undervalued. This column focuses on three undervalued e-commerce stocks to buy and hold until 2030.
An important point is that the global e-commerce industry is expected to grow steadily. The global e-commerce market is projected to grow at a CAGR of 16.9% between 2023 and 2030, and by the end of the decade, it will be worth $21.2 trillion.
Therefore, some of the top e-commerce companies have ample headroom for growth. I have investigated undervalued e-commerce stocks focused on emerging markets like China, Southeast Asia and other emerging Asian countries. Given the relatively under-penetrated market, the growth potential for the discussed ideas is significant.
Coupang (NYSE:CPNG) stock touched 52-week lows of $13.5 in February. Since then, the stock has traded 60% higher, and I expect the uptrend to be sustained. The key factor is an improvement in business fundamentals.
For Q1 2024, Coupang reported healthy revenue growth of 23% on a year-on-year basis to $7.1 billion. The acquisition of Farfetch supported top-line growth. Another big positive is that the company’s active customers in the product commerce segment increased by 16% to 21.5 million.
In the last 12 months, Coupang has reported a free cash flow of $1.5 billion. Key business and financial metrics are therefore encouraging. With the expansion in emerging Asia and Southeast Asia, I expect continued upside in active users and cash flows.
From the perspective of margins, Coupang expects that Farfetch will achieve positive adjusted EBITDA by the end of 2024. While the EBITDA margin declined in Q1, the long-term trend will likely be upward.
After touching highs of $360 in October 2021, Sea Limited (NYSE:SE) stock was in a meltdown mode and touched 52-week lows of $32.3 in January. However, there has been a sharp reversal rally from those levels, and SE stock trades at $72. It seems clear that the e-commerce stock has bottomed out. Based on growth and EBITDA margin expansion, I expect the uptrend to be sustained in the coming years.
It’s worth noting that Sea Limited’s concern was not related to top-line growth. The company operates in an attractive Southeast Asian market.
However, SE stock plunged on the back of a significant cash burn on a sustained basis. There finally seems to be good news, with Q1 2024 adjusted EBITDA at $401.1 million. With operating leverage, the e-commerce segment EBITDA will likely continue to improve. With integrated logistics capabilities as a differentiating factor, the outlook is bullish for the e-commerce business.
Sea Limited ended Q1 2024 with a strong cash buffer of $8.6 billion. This provides ample flexibility to improve the service quality in the e-commerce segment and drive technological advancement in the digital financial services business.
JD.com (NASDAQ:JD) is a Chinese e-commerce stock trading at a significant valuation gap. A forward P/E of 8.2 implies limited downside but significant upside potential. JD stock also offers a dividend yield of 2.84%.
Even with regulatory and macroeconomic headwinds, JD.com has delivered revenue growth at a CAGR of 19% between 2018 and 2023. With diversification, healthy growth will likely sustain.
For Q1 2024, JD Retail reported revenue growth of 7% year over year. For the same period, JD Logistics reported 15% growth. Additionally, JD has been investing in new businesses, and these early-stage companies are setting the stage for growth in the next five years.
For 2023, JD.com reported a free cash flow of 40.7 billion renminbi. This provides high flexibility for capital investments and dividends. Therefore, the fundamentals are strong and the current valuation does not reflect the growth and value creation potential.
On the date of publication, Faisal Humayun did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
Consumer Discretionary, E-Commerce, Retail
Undervalued Stocks
Article printed from InvestorPlace Media, https://investorplace.com/2024/07/3-undervalued-e-commerce-stocks-to-buy-and-hold-until-2030/.
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