Most e-commerce stocks experienced heady rallies last year as online shopping dominated consumer purchases amid the COVID-19 pandemic. With this changing consumer behavior, many traditional brick-and-mortar retailers have altered their business models to increase their online presence. Most agree that this strategy helped them thrive, an experience not dissimilar to core e-commerce companies’.
However, while the e-commerce boom has sent the prices of most of the stocks in the industry to very high levels, some are trading at lofty valuations despite possessing dismal growth prospects. Because the business growth potential of these companies does not justify their stocks’ premium valuations, we believe these stocks might witness a correction in the near term.
Sea Limited (SE), Chewy, Inc. (CHWY), and Jumia Technologies AG (JMIA) are three stocks that look overvalued now considering the weakness in their financials. Hence, it is best to take a pass on these stocks for now.
Sea Limited (SE)
Headquartered in Singapore, SE is involved in digital entertainment, e-commerce, and digital financial service businesses in Asia, Latin America, and internationally. The company operates platforms including Garena digital entertainment, Shopee e-commerce, and SeaMoney digital financial services.
In December , the company priced an offering of 13.2 million American Depositary Shares at US$195.00 per ADS. SE expects to use issue’s proceeds for business expansion and other general corporate purposes.
SE appears to be extremely overvalued currently . In terms of its railing-12-month EV/Sales, SE is currently trading at 33.62x, 1113.8% more expensive than the industry average of 2.77x. Moreover, the company’s trailing-12-month Price-to-Book ratio currently stands at 157.56x, which is significantly higher than the industry average of 2.57x.
In the third quarter ended September 30, 2020, SE’s GAAP revenue increased 98.7% year-over-year to $1.2 billion. The company reported a net loss of $206.1 million and its adjusted EBITDA declined 490.9% from the year-ago quarter to a loss of $30.8 million. However, SE’s bookings under its digital entertainment segment increased 109.5% year-over-year to $944.7 million over this period.
A consensus EPS estimate for the next quarter ending March 31, 2021 represents a 38.5% improvement year-over-year. However, CQP failed to beat the Street’s EPS estimates in any of the trailing four quarters. The consensus revenue estimate of $1.75 billion for the next quarter represents 90.9% growth from the same period last year. The stock has gained 427.3% over the past year.
SE’s POWR Ratings are consistent with its underperformance. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The company has an overall rating of D, which equates to Sell in our proprietary ratings system. SE has a grade of D for Stability, Quality and Value. In the 64-stock Internet industry, it is ranked #59.
To see additional POWR Ratings for Growth, Sentiment, and Momentum for SE, Click here.
Chewy, Inc. (CHWY)
CHWY operates as a pure-play e-commerce business in the United States. The company provides pet food, pet supplies and pet medications, and other pet-health products, as well as pet services for dogs, cats, fish, and birds, through its retail website, and its mobile applications. It offers approximately 60,000 products from 2,000 partner brands.
In November, the company announced the expansion of its Pharmacy (Rx) business to offer compounded medications that are customized to the specific needs of pets. This could allow the company to broaden its portfolio and leverage its reach to pet owners.
CHWY’s forward price/sales ratio currently stands at 5.95x, which is 351.1% more expensive than the industry average of 1.32x. In terms of forward price/cash flow as well, the stock is currently trading at 246.66x, 1541.8% more expensive than the sector average of 16.12x.
The company’s fiscal third quarter (ended November 1, 2020) net sales have increased 45% year-over-year to $1.78 billion. While its net margin improved 460 basis points from the prior-year quarter, CHWY reported a net loss of $32.85 million.
A consensus EPS estimate for the current year represents a 39.7% improvement year-over-year. The consensus revenue estimate of $7.06 billion for 2021 represents a 45.7% increase year-over-year. The stock has gained 283.9% over the past year.
CHWY has a grade of D for both Value and Stability in our POWR Ratings system. In the 61-stock Consumer Goods industry, it is ranked #53.
In total, we rate CHWY on eight different components. Beyond what we stated above we have also given CHWY grades for Growth, Momentum, Sentiment, and Quality. Get all the CHWY ratings here.
Jumia Technologies AG (JMIA)
JMIA is an e-commerce platform in Africa that consists of a marketplace that connects sellers with consumers. It provides logistics services, payment services, as well as various other products in a range of categories, including fashion and apparel, smartphones, home and living, consumer packaged goods, and others.
In December, the company announced the completion of its market offering of 7.97 million ADS, which generated proceeds of $243.2 million. It intends to use the proceeds for general corporate purposes.
JMIA’s trailing-12-month EV/Sales currently stands at 27.90x, 1563.5% more expensive than the industry average of 1.68x. The company’s trailing-12-month price/sales ratio of 28.10x, is significantly higher than the industry average of 1.31x.
JMIA’s GMV declined 28.3% year-over-year to €187.3 million for the third quarter ended September 30, 2020. Its first party revenue declined 53.3% from the year-ago value to €9.8 million. However, its gross profit increased by 22% to €23.2 million over this period.
A consensus EPS estimate for the next quarter ending March 31, 2021 represents a 47.2% decline year-over-year. But the consensus revenue estimate of $45.86 million for the next quarter represents 38.2% growth from the same period last year. The stock has gained 923.2% over the past year.
JMIA’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, which equates to SELL in our rating system. JMIA has a Quality Grade of D, and Value Grade of F. In the Internet industry, it is ranked #58.
Click here to see the additional POWR Ratings for JMIA (Momentum, Stability, Sentiment, and Growth).
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SE shares were trading at $241.05 per share on Thursday afternoon, down $2.49 (-1.02%). Year-to-date, SE has gained 21.10%, versus a 3.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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