Avoid These 4 Overvalued E-Commerce Stocks in December

The e-commerce industry came into the limelight last year, as people resorted to online shopping amid lockdowns and social distancing restrictions. Thus, e-commerce sales amounted to more than $4.28 trillion in 2020. Rapid digitalization also helped small and medium enterprises and merchants to establish a strong e-commerce platform and provide a personalized shopping experience by analyzing consumer tastes. The global e-commerce market is expected to grow at a 29% CAGR to $10.87 trillion by 2025.

However, the gradual uplifting of social distancing measures and solid vaccination drive has allowed brick-and-mortar stores to witness high foot traffic and sales this holiday season. Moreover, inflationary pressures and growing supply chain bottlenecks could make many e-commerce companies lose momentum in the near term.

Given this backdrop, overvalued e-commerce stocks Shopify Inc. (SHOP), Sea Limited (SE), Coupang, Inc. (CPNG), and Etsy, Inc. (ETSY), are best avoided now.

Shopify Inc. (SHOP)

Based in Canada, SHOP provides a cloud-based, multi-channel commerce platform designed for small and medium-sized businesses internationally. The company offers a platform that enables merchants to create an omnichannel experience to manage products and inventory, process orders and payments, ship orders, build customer relationships, leverage analytics and reporting, and access financing.

On November 8, 2021, SHOP’s Shopify Plus platform selected Rebuy, a no-code omnichannel personalization platform for e-commerce brands on Shopify, to join the Certified App Partner program. Rebuy’s personalization, marketing, and retention services, white-glove support, and a custom shopping cart will enable SHOP to help its merchants improve the shopping experience.

As of September 30, 2021, the company had $2.19 billion in cash and cash equivalents. Over the past month, the stock has lost 18.9% and closed yesterday’s trading session at $1354.28.

In terms of forward EV/Sales, SHOP is currently trading at 36.89x, 803.2% higher than the 4.08x industry average. In terms of forward Price/Book, SHOP is currently trading at 14.62x, 158.7% higher than the industry average of 5.65x.

SHOP’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SHOP has a D grade for Growth and Value. To see additional POWR Ratings for SHOP’s Momentum, Stability, Sentiment, and Quality, click here.

Of the 37 stocks in the D-rated Internet - Services industry, SHOP is ranked #33.

Sea Limited (SE)

Headquartered in Singapore, SE engages in the operation of digital entertainment, e-commerce, and digital financial service businesses, known as Garena, Shopee, and SeaMoney, internationally. The company’s Shopee e-commerce platform offers product assortment, integrated payment and logistics infrastructure, and seller services. Its SeaMoney digital financial services also offer payment processing services for Shopee.

SE’s operating loss for its fiscal third quarter ended September 30, 2021, came in at $458.56 million, representing a 50.1% rise from the prior-year period. While its net loss increased 34.3% year-over-year to $570.98 million, its loss per share increased 21.7% to $0.84. As of September 30, 2021, the company had $11.13 billion in cash and cash equivalents.

Analysts expect SE’s EPS to remain negative for the current year. The stock has lost 34.2% over the past month and ended yesterday’s trading session at $224.72. SE’s 12.83x forward EV/Sales is 415% higher than the 2.49x industry average. In terms of forward Price/Book, SE is currently trading at 21.46x, 719.9% higher than the industry average of 2.62x.

SE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, equating to a Sell. Additionally, SE has an F grade for Value, and a D grade for Sentiment, Quality, and Stability. In addition to the POWR Rating grades I’ve highlighted, one can see SE’s ratings for Growth and Momentum here.

The stock is ranked #69 of 77 stocks in the F-rated Internet industry.

Coupang, Inc. (CPNG)

Based in Seoul, South Korea, CPNG owns and operates the e-commerce business through its mobile applications and Internet websites internationally. It sells various home goods and décor products, apparel, beauty products, fresh food and groceries, sporting goods, electronics, everyday consumables, as well as travel and restaurant order and delivery services.

For its fiscal third quarter ended September 30, 2021, CPNG’s operating loss came in at $315.11 million, representing a 45.7% rise from the prior-year period. Its net loss increased 87.3% to $323.98 million. Its loss per share came in at $0.19, down 96.8% from the prior-year period. The company had $3.93 billion in cash and cash equivalents as of September 30, 2021.

Analysts expect the stock’s EPS to remain negative in the current year. CPNG has gained 2.9% over the past month and closed yesterday’s trading session at $27.36.

In terms of forward EV/Sales, CPNG is currently trading at 2.47x, 72.2% higher than the 1.44x industry average. In terms of forward Price/Book, CPNG is currently trading at 22.82x, 539.6% higher than the industry average of 3.57x.

CPNG’s POWR Ratings reflect this bleak outlook. The stock has a D grade for Growth, Value, Sentiment, and Quality. Click here to see the additional ratings for CPNG (Stability and Momentum).

CPNG is ranked #72 in the F-rated Internet industry.

Etsy, Inc. (ETSY)

ETSY operates two-sided online marketplaces, Etsy.com and Reverb.com, connecting buyers and sellers worldwide. The company also provides Etsy Payments, a payment processing service, Etsy Ads, an advertising platform, and Etsy Shipping Labels, allowing sellers to purchase discounted shipping labels.

On July 13, 2021, ETSY completed the acquisition of Depop, a London-based peer-to-peer social e-commerce company, for approximately $1.63 billion. This acquisition will further extend ETSY’s opportunities into the high-frequency apparel sector, specifically in the fast-growing resale space serving Gen Z consumers.

For the fiscal third quarter ended September 30, 2021, ETSY’s operating income decreased 29.1% year-over-year to $83.74 million. While its net income decreased 2% year-over-year to $89.93 million, its loss per share decreased 11.4% to $0.62. The company had $619.40 million in cash and cash equivalents as of September 30, 2021.

Analysts expect ETSY’s EPS to remain negative in the current quarter ending December 31, 2021. The stock has lost 20% over the past month and ended yesterday’s trading session at $217.66.

ETSY’s 12.78x forward EV/Sales is 790.2% higher than the 1.44x industry average. In terms of forward Price/Book, ETSY is currently trading at 43.97x, 1131.9% higher than the industry average of 3.57x.

It’s no surprise that ETSY has an overall D grade, which equates to Sell in our POWR Ratings system. ETSY has an F grade for Value, and a D grade for Sentiment, Growth, and Stability. Click here to see additional POWR Ratings for ETSY’s Momentum and Quality.

The stock is ranked #54 in the F-rated Internet industry.

SHOP shares were trading at $1,303.79 per share on Wednesday afternoon, down $50.49 (-3.73%). Year-to-date, SHOP has gained 15.18%, versus a 25.62% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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