Should You Invest in Top Ecommerce Companies?
Dear reader, it’s important to remember that the stock market isn’t a solid thing. It is made up of different sectors, some of which are more promising than others.
For instance, online retail stocks are on the verge of exploding, meaning that growth-hungry investors should keep a close eye on the best ecommerce stocks; they could provide triple-digits gains in 2017.
By contrast, other sectors of the stock market are looking weak. Consumer electronics may have made investors rich through the 2000s, but it is a big loser these days. Sales of personal computers dropped more than five percent last year, and laptops and smartphones sales are falling off a cliff. But that doesn’t mean the rest of the market is rotten.
Based on my research into broad-sweep technology trends, top ecommerce companies shares are ripe for the taking. They offer excellent growth opportunities for investors, in part because they haven’t maximized their potential. There is a gap between what the market expects and what is reality.
Spotting these gaps is what we do at Profit Confidential.
It is the easiest way to determine whether or not a sector is undervalued, as is evident by the success of many fundamental investors. Legendary investors like Warren Buffett and Benjamin Graham have used this approach to generate billions in profits. Forget the fancy modelling techniques—fundamental analysis is the surest path to success on the stock market.
Just look at Buffett’s record. He’s undoubtedly the greatest of all time, and yet he doesn’t even have a computer at his desk. He just asks what a business sells, what its growth prospects are, and whether its share is correctly priced. There’s no shortcut to this kind of valuation.
Buffett peeks under the hood, kicks the tires, and looks at the sticker price of every company. I have followed his example and compiled an ecommerce stocks list of three top companies to look at. There is one thing that connects all three: massive upside potential.
Top Ecommerce Stocks for 2017: Amazon.com, Inc. (NASDAQ:AMZN)
Amazon.com, Inc. (NASDAQ:AMZN) is easily the frontrunner of ecommerce stocks. It is pretty much synonymous with online retail, at least in North America. But that doesn’t mean that AMZN stock is anywhere near its peak. The share price still has enormous room to the upside, especially because of Amazon’s growth in India.
As the second-most populous country in the world, India represents a massive opportunity for ecommerce companies. There are more than 1.3 billion prospective consumers in India, many of whom are just entering the middle class. They have money to spend! Amazon is offering them everything they need at lower prices than in stores.
But many companies have tried and failed to enter India in the past. What makes Amazon so special? What convinces me that it’ll conquer the subcontinent?
Well, there are two reasons.
1. Jeff Bezos.
Amazon’s chief executive officer is a force of nature. This guy is one of the best, if not the best, CEOs on the planet. That’s not just my opinion either. MIT’s Technology Review listed Amazon as the smartest company of 2016, and Bezos is perennially on the list of top CEOs. Even Warren Buffett has nothing but good things to say about him. “We haven’t seen many businessmen like him,” he said. (Source: “Warren Buffett says he’s in awe of Jeff Bezos’ genius,” CNBC, May 2, 2016.)
“Overwhelmingly, he’s taken things you and I’ve been buying and he’s figured out a way to make us happier buying those products, either by fast delivery or prices or whatever it may be, and that’s remarkable.” If there’s one guy who can navigate the pivot into India, it’s Jeff Bezos. He takes the time to understand what customers want, and then he delivers. (Source: Ibid.)
2. Smartphone uptake in India
This is probably the most important point. In Europe and North America, most people had landline telephones before smartphones. But in India, many people only escaped poverty in the last two decades. As a result, they bypassed home telephones and skipped straight ahead to cellphones. There are more than one billion mobile subscribers in India, which is how Amazon is accessing the country. (Source: “India Just Crossed 1 Billion Mobile Subscribers Milestone And The Excitement’s Just Beginning,” Forbes, January 6, 2016.)
Customers can call into pseudo-fulfillment centers and order whatever they like. Moreover, Amazon allows payments to be made in cash on delivery because it realized Indians are wary of credit. This goes back to Jeff Bezos being a remarkable CEO. (Source: Ibid.)
In summary, the rise of India’s middle class puts AMZN stock on my top ecommerce companies stocks list. We’re already starting to see this tailwind take effect.
AMZN Stock Performance: 5 Years
Chart courtesy of StockCharts.com
Top Ecommerce Stocks for 2017: Mercadolibre Inc (NASDAQ:MELI)
While Amazon is looking strong in India, it hasn’t made much way in Latin America. That territory belongs to Mercadolibre Inc (NASDAQ:MELI), the second entry on my top ecommerce stocks list. Mercadolibre Inc is the leading ecommerce provider to major markets like Brazil, Argentina, and Venezuela.
It may seem odd that online retail stocks hit geographical barriers, but there are cultural and language criteria that need to be met; otherwise, consumers won’t feel comfortable shopping on the platform. Amazon is all too aware of those lessons (as it proved in India), but it chose not to dedicate enough resources to winning South America. That left the gate open for Mercadolibre.
Despite volatile conditions in Brazil and Argentina, MELI stock has more than doubled in the last 52 weeks. It didn’t matter that there were economic upheavals and currency crashes; Mercadolibre continued to hit record highs throughout 2016. I expect this growth pattern to accelerate as economic conditions improve in South America.
MELI Stock Performance: 5 Years
Chart courtesy of StockCharts.com
Top Ecommerce Stocks for 2017: Stamps.com Inc. (NASDAQ:STMP)
The third company on my top ecommerce companies stocks list is Stamps.com Inc. (NASDAQ:STMP). While STMP isn’t similar to other online retail stocks, it is very attractive from an investing perspective. In a nutshell, sales are growing quickly, but profits are growing even faster.
Under normal circumstances, sales of $92.6 million in the third quarter, up 79% year-over-year, would pique investors’ interest. Pile on 148% growth in net income, and those investors would be drooling at the mouth. (Source: “Stamps.com Reports Third Quarter 2016 Results,” Stamps.com Investor Relations, November 3, 2016.)
However, the business of selling stamps isn’t sexy, so STMP stock slips beneath most investors’ radars. But they are missing something huge: the decline of the U.S. Postal Service.
Businesses and individuals can use Stamps.com to print off their own postage stamps. Simple, right? What makes this stock so attractive is that the U.S. Post Office is in deep trouble. It is losing a lot of money, and branches are closing across the United States. This is in spite of the fact that many businesses still require shipping services on a regular basis.
What better time is there to own a company that sells stamps? By empowering other businesses to engage in online retail, Stamps.com is simultaneously fueling the growth of ecommerce and hedging against any one client.
The business model is clear; the financial position is solid (despite being based out of Silicon Valley). It is the right company at the right time, and that’s why it makes my top ecommerce stocks list.
To put it simply, this is one of the ecommerce stocks that could double or even triple its worth in the next 12 to 18 months. Both the macro and micro indicators point in that direction.
STMP Stock Performance: 5 Years
Chart courtesy of StockCharts.com
Bottom Line on Top Ecommerce Companies
The rise of ecommerce is an undeniable fact. You can see the effect on brick-and-mortar stores all over the country; customers are getting out to the mall less frequently. Even on Black Friday, the holiest of holy shopping days, customers decided they would rather wait for Cyber Monday.
Footfall traffic (the number of people in stores) dropped by 3.2%, while ecommerce indicators burst through the roof. There were 1.2 million apps downloaded that Black Friday-Cyber Monday weekend, showing that people were eager to shop from their smartphones. As a result, companies like PayPal Holding Inc (NASDAQ:PYPL) saw their transaction volume skyrocket.
From mobile shopping alone, PayPal handled $15,507.00 worth of payments per second. This was 50% higher than the year before. (Source: “Black Friday & Cyber Monday 2016 ecommerce stats bonanza,” Econsultancy, December 1, 2016.)
So it’s hard to deny that there is something special going on in the ecommerce sector of the stock market. However, I would suggest steering clear of the stocks of small online retailers, because they are likely to get run over by Amazon, the 800-pound gorilla of ecommerce.
But, where there is defensible market position, like Mercadolibre’s position in Latin America—or there is a niche service to be provided, like in the case of Stamps.com— there is potential to be found. In other words, investors can get rich off the ecommerce boom, but they better pay attention to fundamentals along the way.