In another example of Reddit traders driving gains, online electronics retailer Newegg Commerce (NEGG) saw massive returns last week. The company is an online marketplace platform for IT computer components, consumer electronics, entertainment, and smart home and gaming products. The company went public in May through a reverse merger with SPAC Lianluo Smart.
Investors didn’t take notice of NEGG until the availability of options trading earlier this month, which sent the stock higher. Then, on Tuesday, shares of NEGG surged almost 42% after news the company was holding a sale of hard-to-find graphics cards. On Wednesday morning, the stock went up another 96% after news that the company launched a new business venture offering professional PC assembly.
The stock was up another 4% Friday and up almost 150% for the week. While the company has been around for twenty years, and I’ve personally shopped for PC equipment on the site for over fifteen years, the company is currently rated a Strong Sell in our POWR Ratings system. Investors would be better suited to invest in internet stocks with Buy Ratings such as Alphabet Inc. (GOOGL), Facebook Inc. (FB), Yelp Inc. (YELP).
Alphabet Inc. (GOOGL)
While 85% of GOOGL’s revenue comes from online ads, the company also sees revenue from sales of apps and content on Google Play and YouTube, cloud service fees, and other licensing revenue. This is in addition to sales of hardware such as Chromebooks, the Pixel smartphone, and smart homes products such as Nest and Google Home.
In fact, GOOGL’s cloud segment is generating substantial revenue growth. Its expanding data centers should continue to bolster its presence in the cloud space. The company is also benefiting from updates in Google search that are enhancing the search function. Plus, GOOGL’s mobile search is helping to drive momentum in the search segment.
The company’s focus on artificial intelligence and the home automation space should aid growth in the long term, as will its focus on wearables and its efforts to enter into the healthcare industry. The company has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. GOOGL has a Sentiment Grade of A as it is well-liked by Wall Street Analysts.
Forty-four out of forty-six analysts have a Buy or Strong Buy rating on the stock. The company also has a Quality Grade of B due to solid fundamentals. GOOGL has a current ratio of 3.1 and a debt-to-equity ratio of 0.1. We also provide Growth, Value, Momentum, and Stability grades for GOOGL, which you can find here.
GOOGL is ranked #1 in the Internet industry. You can find other top stocks in this industry by clicking here.
Facebook Inc. (FB)
FB is currently in the process of building a library of premium video content and monetizing it via ads or subscription revenue. Advertising revenue represents more than 90% of the company’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. Ads are generated in most apps in the company’s ecosystem, such as Facebook, Instagram, Messenger, and WhatsApp.
The company is benefiting from strong user growth in most regions globally, particularly in the Asia Pacific. In fact, increased user engagement in products such as Instagram, WhatsApp, and Messenger is a major growth catalyst for the company. This has led to more revenue as FB’s ad revenue per user is growing.
FB is also seeing substantial advertising gains from the ongoing shift to online commerce as people can pay to run ads in the Facebook Marketplace. Management expects AI and VR products to increase user engagement further, leading to more advertising revenue. FB has an overall grade of B and a Buy rating in the POWR Ratings system.
The company has a Quality Grade of A due to a rock-solid balance sheet. The company had $64 billion in cash as of the most recent quarter compared with no short-term debt. FB also has strong profitability figures as its gross margin is 80.6%, and its net profit margin is 35.7%. Analysts forecast earnings to grow 67.8% year over year in the second quarter.
For the rest of FB’s grades (Growth, Value, Momentum, Stability, and Sentiment), click here. FB is ranked #7 in the same industry (Internet) as GOOGL.
Yelp Inc. (YELP)
YELP provides a web-based platform and mobile application to bridge the gap between businesses and consumers. The platform assists consumers through product reviews, tips, photos, and videos, thereby enabling them to make better buying decisions. It also caters to businesses in reaching out to potential customers by providing advertising space.
The company mainly generates revenue from the sale of advertising on its website and mobile app to businesses. The company has benefited from an increase in food take-out and delivery orders due to the stay-at-home restrictions during the height of the pandemic. These benefits appear to be here to stay as the company is seeing an acceleration in consumer traffic across its app-unique devices.
Not only that, but YELP is also seeing a considerable improvement in cumulative reviews. Management’s shift toward selling advertising plans without a fixed duration has resulted in an increase in paying advertiser accounts. The company has also benefited from its partnership with GrubHub, as the company generated revenues from GrubHub for transactions that start on the Yelp platform.
YELP has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Value Grade of B, which makes sense as its price-to-sales ratio of 3.4 is well below the industry average. Its price-to-book ratio is also below the industry average. YELP also has a Quality Grade of A due to its strong financial standing.
The company has a current ratio of 4.5 and a debt-to-equity ratio of 0.2. It also has a gross margin of 93.5%. For all of YELP’s grades, including Growth, Momentum, Stability, and Sentiment, click here. YELP is ranked #3 in the Internet industry.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years
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NEGG shares were trading at $36.80 per share on Monday afternoon, down $9.89 (-21.18%). Year-to-date, NEGG has gained 786.75%, versus a 17.54% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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