Battered ChannelAdvisor Stock Worth a Look at an Attractive Price

Battered ChannelAdvisor Stock Worth a Look at an Attractive Price NYSE:ECOM Stock
iStock.com/Suwaree Tangbovornpichet

ChannelAdvisor Helping Companies Improve Their Web Presence

The launch of the Internet back in the 1990s led to a revolution in the way that retailers and other companies did business. The move to 3G and 4G Internet speeds made it even more critical to have a web presence. Companies that failed to adapt have suffered.

Amazon.com, Inc. (NASDAQ:AMZN) is widely regarded as the leading barometer of the retail space. Amazon has forced companies to adapt to a stronger online presence.

An intriguing small-cap play in the e-commerce cloud space with a good risk-to-reward prospect is ChannelAdvisor Corp (NYSE:ECOM). Its stock price is down 31% from its 52-week high of $15.63, and well below its record high of $49.90 in March 2014.

While there’s no guarantee that ECOM stock can deliver, the company’s underlying fundamentals and forward expectations suggest that the stock has a good chance to outperform.

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ChannelAdvisor provides a cloud platform for retailers and branded manufacturers to improve their e-commerce sales and customer experience. It uses big data to give insights to businesses so they can make critical decisions.

The company works with its clients to expand their presence on hundreds of e-commerce portals and search engines, including Amazon, eBay Inc (NASDAQ:EBAY), Google (Alphabet Inc (NASDAQ:GOOG)), Facebook, Inc. (NASDAQ:FB), and Walmart Inc (NYSE:WMT).

On its price chart, ChannelAdvisor stock is struggling to stay afloat above its 52-week low, with support at the $9.00 level and resistance at $11.00-$12.00.

A breakout could drive ECOM to major resistance around $15.00. We know that the potential upside for this stock is huge, given its record high.

Chart courtesy of StockCharts.com

Sound Metrics and Pending Profits Mean Upside for ECOM Stock

ChannelAdvisor has increased its revenue in each of the past four years, as the below chart illustrates. The compound annual growth rate (CAGR) for the 2013–2017 period was 15.9%.

Fiscal Year Revenue (Millions) Growth
2013 $68.0
2014 $84.9 24.9%
2015 $100.6 18.5%
2016 $113.2 12.5%
2017 $122.5 8.3%

(Source: “ChannelAdvisor Corp.,” MarketWatch, last accessed February 1, 2019.)

There are some concerns regarding the deceleration in the growth rate from 2015 to 2017 and the muted growth expectations for 2018 and 2019, but my view is that the fear is overblown, given the depressed price for ChannelAdvisor stock and the strong tailwinds in the e-commerce segment.

Looking ahead, ChannelAdvisor is expected to report revenue growth of seven percent to $131.1 million in 2018, followed by growth of another seven percent to $140.2 million in 2019. (Source: “ChannelAdvisor Corporation (ECOM),” Yahoo! Finance, last accessed February 1, 2019.)

Yes, ChannelAdvisor has been losing money, but the company is expected to report profitability on an adjusted basis for the first time in 2018.

Fiscal Year Earnings Per Share
2013 -$1.51
2014 -$1.40
2015 -$0.84
2016 -$0.31
2017 -$0.63

(Source: MarketWatch, op cit.)

The company is slated to report an adjusted $0.06 per diluted share in 2018 and $0.15 per diluted share in 2019. (Source: Yahoo! Finance, op cit.)

On a free cash flow (FCF) basis, ChannelAdvisor only produced one year of positive FCF in the past few years, which isn’t a surprise for a small emerging technology company.

Fiscal Year Free Cash Flow (Millions)
2013 -$10.5
2014 -$28.4
2015 -$5.7
2016 $9.6
2017 -$5.8

(Source: MarketWatch, op cit.)

My thinking is that the company could see positive FCF again in 2018 and/or 2019, based on a move to profitability.

Analyst Take

ChannelAdvisor stock is in a great space, with the prospect to deliver stronger growth as the company matures.

If ChannelAdvisor can execute on its revenue growth, I would expect the price of ECOM stock to ratchet higher and outperform the broader market.