E-commerce stocks are expensive but have roaring growth rates
Head of Equity Strategy
Summary: In today's equity update, we take a look at 48 companies within e-commerce representing $3.5trn in market value. The group has revenue growth of 30% based on the latest earnings releases and analysts continue to be positive on the majority of the e-commerce stock seeing 16% upside on average over the coming 12 months. This group of e-commerce stocks represent around 6% of the global equity market value, but with half of Amazon's value likely coming from its cloud business the real weight is probably only 4% leaving plenty of room for market value increase over the coming decade.
With the Q3 earnings season almost done and the Covid-19 pandemic still raging on across the globe it is time to look at e-commerce companies which got the biggest boost this year. We have identified 48 companies operating within e-commerce as their primary domain (see list at the bottom) with combined market value of $3.5trn representing around 6% of the global equity market. These companies are still growing rapidly with the average growth around 30% y/y based on their latest earnings reports. As a group e-commerce companies are still not delivering positive ROIC numbers but is primarily a function of a lot of smaller e-commerce companies focusing on revenue growth in stead of profitability. The average ROIC among the 10 largest e-commerce companies is around 5% impacted negatively by China-based Pinduoduo.
Analysts continue to be positive on the industry with the average price target being around 16% higher than the current price level. If this e-commerce group collectively delivers 16% over the next 12 months that is a very attractive return given the uncertainty in the economy. The high growth does not come cheap with the average valuation on 12-month forward EV/EBITDA being 69x or 5 times more expensive than the global equity market. But valuations shouldn't scare investors from investing in e-commerce companies. The lesson from Microsoft is that its stock was also 5 times more expensive than the US equity market in 1986 but has still managed to deliver 26.6% annualised return excluding dividends for its shareholders. The lesson is, that if you are picking tomorrow’s winners valuation means less as the market often undervalues the long-term compounding effects of a winning business.
Another important principle worth considering is the fact that per definition all the biggest companies in the equity market today, or at any given time, was a high-growth company and thus if you are long-term winner your objective should be to pick the long-term winners. Said in another way, long-term investors should focus on growth companies.
|Name||Region (*)||Market Cap (USD mn.)||Sales growth (%)||ROIC (%)||Diff to PT (%)||12M Fwd EV/EBITDA|
|Alibaba Group Holding Ltd||China||718,752||35.3||9.4||28.8||18.3|
|Booking Holdings Inc||Global||81,911||3.7||4.3||-5.2||25.7|
|Chewy Inc||United States||26,379||37.2||#N/A||11.7||221.0|
|Delivery Hero SE||MENA||25,351||86.1||-26.9||6.1||#N/A|
|Wayfair Inc||United States||25,035||34.6||0.8||18.9||36.4|
|Ocado Group PLC||United Kingdom||23,174||9.9||-4.2||-10.8||198.7|
|Trip.com Group Ltd||China||21,054||15.2||0.4||-7.5||32.8|
|Expedia Group Inc||Global||16,933||7.5||-17.1||-5.1||21.9|
|Just Eat Takeaway.com NV||Europe||16,680||79.0||-1.2||24.4||38.8|
|Etsy Inc||United States||16,466||35.6||18.2||22.6||31.8|
|Vipshop Holdings Ltd||China||14,128||10.0||19.9||2.2||10.0|
|THG Holdings PLC (Hut Group)||Global||7,898||24.5||#N/A||33.3||36.9|
|Williams-Sonoma Inc||United States||7,452||4.0||17.1||4.1||10.2|
|Dada Nexus Ltd||China||6,990||61.3||-43.3||17.0||#N/A|
|ASOS PLC||United Kingdom||6,029||19.4||17.8||9.9||15.7|
|Fiverr International Ltd||United States||5,643||41.8||-7.3||7.2||217.5|
|ANGI Homeservices Inc||United States||5,383||17.1||0.2||26.8||28.0|
|boohoo Group PLC||United Kingdom||4,593||44.1||30.4||57.9||16.7|
|LendingTree Inc||United States||4,096||44.7||0.7||15.1||28.6|
|Stitch Fix Inc||Global||3,924||8.5||-10.7||-19.5||42.0|
|Qurate Retail Inc||Global||3,629||-4.3||11.2||22.8||4.6|
|LivePerson Inc||United States||3,556||16.7||-30.8||31.0||90.3|
|Stamps.com Inc||United States||3,518||-2.6||21.2||93.3||15.2|
|Shop Apotheke Europe NV||Germany||2,940||29.9||#N/A||20.8||91.0|
|Overstock.com Inc||United States||2,226||-19.9||3.6||93.4||20.5|
|eHealth Inc||United States||1,897||101.4||15.4||74.7||8.9|
|Jumia Technologies AG||Africa||1,051||24.3||-164.2||0.8||#N/A|
|PetMed Express Inc||United States||645||0.2||27.6||3.6||12.2|
|Aggregate / mean||3,485,674||29.6||-1.9||15.7||69.1|
Source: Bloomberg and Saxo Group
* Region is the main geographical revenue segment, and global if geographical segments are almost equal
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