The e-commerce industry benefited handsomely from the pandemic-related lockdowns last year, with a drastic shift in consumer preference toward online shopping. According to Digital Commerce 360 estimates, consumers spent $861.12 billion online with U.S. merchants in 2020, representing a 44% increase year-over-year.
However, with significant progress on the vaccination front and the consequent easing of social distancing restrictions, brick and mortar stores have been seeing rising foot traffic over the past few months. The return to store shopping has led to a considerable slowing in online sales growth. Online sales growth is expected to be 15.6% this year and 10% next year, declining from 29.5% last year.
Given this backdrop, we believe e-commerce companies Sea Ltd. ADR (SE) and MercadoLibre, Inc. (MELI), which look highly overvalued at their current price levels considering their weak fundamentals and growth prospects, are best avoided.
Sea Ltd. ADR (SE)
Based in Singapore, SE participates in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, the rest of Asia, and internationally. The company operates in three business segments—Garena; Shopee; and SeaMoney.
SE’s 224.38 forward EV/EBITDA multiple is 2,009.2% higher than the 10.64 industry average. In terms of forward Price/Cash Flow, SE is currently trading at 209.91x, which is 1,889.8% higher than the 10.55x industry average.
SE’s operating loss increased 30.1% year-over-year to $348.41 million in its fiscal first quarter ended March 31. Its net loss increased 50.3% from its year-ago value to $422.09 million. The company’s loss per share increased 19.2% year-over-year to $0.62.
Analysts expect SE’s revenues to increase 81.1% year-over-year to $2.2 billion in the current quarter, ending September 2021. However, its EPS is expected to remain negative at least until next year. SE’s share price has slumped 3% over the past five days and marginally over the past month.
SE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an F grade for Value, and a grade D for Stability, Sentiment, and Quality. Among the 74 stocks in the F-rated Internet industry, SE is ranked #65.
To see additional SE ratings for Growth and Momentum, click here.
MercadoLibre, Inc. (MELI)
MELI is an e-commerce company that enables commerce through its marketplace platform that is designed to provide users with a portfolio of services to facilitate commercial transactions. It is headquartered in Vicente Lopez, Argentina.
On July 20, BigCommerce Holdings Inc. (BIGC) and MELI partnered to power cross-border e-commerce growth. MELI expects this partnership to complement its expansion in North America. However, considering MELI’s bleak financials, it might take some time for the company to gain a decent market share.
In terms of non-GAAP forward P/E, MELI is currently trading at 52.10K, which is 320,728.7% higher than the 16.24 industry average. Its 406.63 forward EV/EBIT multiple is 2,752.1% higher than the 14.26 industry average of 14.26.
MELI’s net loss increased 61.1% year-over-year to $34.01 million in its fiscal first quarter, ended March 31. The company’s loss per share increased 54.5% year-over-year to $0.68. Its cash and cash equivalents balance declined 6.1% from the prior-year quarter to $1.19 billion over this period.
MELI share price has retreated 2% year-to-date. Over the past six months, the stock has lost 7.8% to close yesterday’s trading session at $1,641.52.
MELI’s poor prospects are also apparent in its POWR Ratings. The stock has an F grade for Value. It is ranked #52 in the Internet industry.
Beyond what we’ve stated above, we have also rated MELI for Growth, Sentiment, Quality, Momentum, and Stability. Click here to view all MELI ratings.
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SE shares were trading at $276.16 per share on Friday afternoon, down $8.85 (-3.11%). Year-to-date, SE has gained 38.74%, versus a 18.06% 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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