Tech stock investing can get very, very expensive. Take Amazon.com, Inc. (NASDAQ:AMZN), for instance. While the company is making money hand over fist in the red-hot e-commerce industry, its shares also trade at nearly $1,750 apiece.
In other words, if an investor wants to buy just six shares of Amazon stock, they would need to put up over $10,000.
The good news is, there are lower-priced e-commerce stocks trading in the market. While most of them aren’t nearly as famous as Amazon, some might turn out to be worthy investments in the long term.
Case in point: ChannelAdvisor Corp (NYSE:ECOM), an e-commerce company headquartered in Research Triangle Park, North Carolina.
In the company’s own words, ChannelAdvisor helps brands and retailers “connect with customers, optimize operations and grow sales channels.” (Source: “The ChannelAdvisor Story,” ChannelAdvisor Corp, last accessed November 22, 2019.)
At the time of this writing, ECOM stock trades around $9.00 per share.
Here are three reasons why investors might want to consider it.
Reason #1: ChannelAdvisor Corp Operates in a Booming Industry
The first reason is quite obvious: ChannelAdvisor operates in a booming industry. As more consumers embrace online shopping, more brands and retailers will want to sell their products to online shoppers. This could lead to an increasing demand for ChannelAdvisor Corp’s services.
Note that, by the end of 2018, ChannelAdvisor was already serving more than 2,800 clients located in over 75 countries around the world. Added up, these clients had an annual gross merchandise volume north of $10.0 billion. (Source: “KeyBanc Capital Markets 14th Annual Emerging Technology Summit,” ChannelAdvisor Corp, February 27, 2019.)
Given the continuing growth of the e-commerce industry, I wouldn’t be surprised to see those numbers go up even further.
Reason #2: ChannelAdvisor Corp Runs a Recurring Business
The second reason is a bit less obvious. We know that, in the tech world, companies are always boasting how fast their business has grown.
What we don’t know, though, is whether their customers will come back the next year. In the fast-changing tech world, it’s not unusual to see a company with booming sales in one year fall deep in the doldrums in the next one.
And that’s where ChannelAdvisor stands out. In the third quarter of 2019, the company generated $31.7 million in total revenue. Note that $25.8 million, or 81.5% of total revenue, came from fixed subscription fees. (Source: “ChannelAdvisor Reports Third Quarter 2019 Results; Adjusted EBITDA Significantly Exceeds Guidance,” ChannelAdvisor Corp, November 7, 2019.)
This means the bulk of the company’s business was recurring.
Again, having recurring revenue may not seem like much in an industry that’s firing on all cylinders. But for risk-averse investors, it’s very reassuring to know that there is some predictability in the company’s business.
On a side note, ChannelAdvisor did grow its financials quite a bit in recent years. From 2014 to 2018, the company’s total revenue increased at a compound annual growth rate (CAGR) of 11.5%. (Source: ChannelAdvisor Corp, February 27, 2019, op. cit.)
Reason #3: ChannelAdvisor Corp Is Improving Its Bottom Line
Top-line growth is great, but for a lot of tech companies, the difficulty is translating that top-line growth to the bottom line.
In fact, it’s not unusual to see a tech company with strong sales growth still make sizable losses year after year. And while investors can be patient, most would want to put their money in a company that can turn a profit at some point in the foreseeable future.
And that brings us to the third reason to check out ChannelAdvisor stock: profitability.
In the third quarter of this year, ChannelAdvisor’s adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) came in at $5.2 million, which more than doubled the $2.3 million earned in the year-ago period. (Source: “Quarterly Metrics,” ChannelAdvisor Corp, last accessed November 20, 2019.)
Notably, the company’s adjusted EBITDA as a percentage of revenue was 16.3% in the third quarter of 2019. In the year-ago quarter, ChannelAdvisor’s adjusted EBITDA as a percentage of revenue was 7.1%. This could be an indication of increasing profitability.
Indeed, at the bottom line, the company earned a net income of $1.7 million, or $0.06 per diluted share for the third quarter of 2019.
Again, this marked a huge year-over-year improvement because, in the third quarter of 2018, ChannelAdvisor incurred a net loss of $2.3 million, or $0.08 per share.
ChannelAdvisor Corp (NYSE:ECOM) Stock Chart
Chart courtesy of StockCharts.com
Putting it all together, you’ll see that ChannelAdvisor Corp could be something special.
While ChannelAdvisor stock currently has a single-digit price, further growth in the company’s business could allow investors to justify a much higher valuation for ECOM stock.