Tech-focused e-commerce company Newegg Commerce, Inc. (NEGG) in City of Industry, Calif., sells electronics that operate business-to-consumer (B2C) platforms, business-to-business (B2B) operations, and other online platforms. The company offers PC components, consumer electronics, smart home, and gaming products. Last month, NEGG announced that BuildENIAC Inc., its PC assembly division, recently received ISO 9001:2015 certification for Quality Management Systems. “This ISO certification is a result of BuildENIAC’s commitment to becoming the leading source for the highest quality gaming PCs in the world,” said Vishal Mane, head of BuildENIAC.

Also, the company has been expanding its presence in North America, introducing two new distribution centers in Atlanta, Ga.,  and Ontario, Calif. NEGG now has eight distribution facilities located throughout the United States.

NEGG shares have slumped 50.5% in price over the past six months to close the last trading session at $6.81. The stock is down 34.3% year-to-date. NEGG shares skyrocketed last year on the Reddit-driven meme stock phenomenon, but the premium price level could not be sustained, like most other meme stocks. The stock has declined significantly from its 52-week high of $79.07, which it hit on July 07, 2021. However, with the meme stocks staging a comeback, NEGG has gained 44.6% over the past month.

Here is what could shape NEGG’s performance in the near term:

Bottom Line Expected to Decline

For the first half of 2021, NEGG’s net sales increased 39.9% to $1.21 billion from $862.70 million in the same period the prior year, while its gross profit increased 33.9% year-over-year to $166.93 million. Its net income increased 14% from its year-ago value to $21.59 million. Its EPS remained unchanged at $0.05.

In addition, NEGG expects to achieve approximately $1.20 billion in net sales, and net income between $14.50 and $18.50 million for the second half of 2021, which is significantly lower than the company’s first-half results.

Risky Bet

Meme stocks continued to fall out of favor for investors earlier this year as fears of a rise in interest rates punctured the prospects of speculative trading. “As rates rise, the present value of future cash flows diminishes, and it takes some of the speculation out of the market,” said Thomas Hayes, managing member at Great Hill Capital in New York. The heightened volatility in the stock market due to the Fed’s policy changes and Russia’s invasion of Ukraine had shifted investors’ preference towards traditional equities, away from risky options. The meme stock frenzy that was seen last year was partially driven by people flocking to the stock market for entertainment while COVID-19 restrictions put outdoor recreational activities out of reach.

“Whether one looks at the proportion of retail investors in total U.S. stock trading or the number of stocks traded by retail investors, it is clear that U.S. retail activity had peaked at the beginning of 2021 with diminishing peaks since then,” according to JPMorgan. Although meme stocks seem to be returning to the limelight, pushing NEGG’s shares up,  the stock is likely to plummet in the near term.

POWR Ratings Reflect Uncertain Prospects

NEGG has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Stability, indicative of its volatile nature.

NEGG also has a C grade for Growth. The company’s mixed financial performance justifies this grade.

Among  71 stocks in the  Internet industry, NEGG is ranked #42.

Beyond what I have stated above, one can also view NEGG’s grades for Quality, Value, Momentum, and Sentiment here.

View the top-rated stocks in the Internet industry here.

Bottom Line

The stock has been gaining traction over the past month, but it is questionable whether it will be able to sustain its momentum. Furthermore, NEGG’s near-term growth prospects look uncertain amid the stiff competition it faces from several prominent names in the industry. Also, considering the heightened volatility, the stock could be a risky bet now. Thus, we think it could be best to wait for a better entry point in the stock.

How Does Newegg Commerce, Inc. (NEGG) Stack Up Against its Peers?

While NEGG has an overall POWR C Rating, one might want to consider taking a look at its industry peers, trivago N.V. (TRVG), which has an A (Strong Buy) rating, and Yelp Inc. (YELP), Travelzoo (TZOO), which have a B (Buy) rating.

Note that TRVG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

NEGG shares rose $0.04 (+0.59%) in premarket trading Wednesday. Year-to-date, NEGG has declined -34.33%, versus a -4.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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