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from the world of economics and financeThis year is likely to be a good one for e-commerce, with the segment expected to take away big slices of the total retail pie. Commerce Department numbers for the last quarter is proof of this: e-commerce sales in the fourth quarter of 2023 grew 7.5% over 4Q22 (0.8% sequentially), with total retail sales increasing 2.8% (0.4% sequentially). E-commerce accounted for around 15.6% of total U.S. retail sales.
The convenience of online shopping remains the top reason for ecommerce volumes and this is particularly true of Gen-Z, which is, increasingly, the more relevant component of sales. Many of these buyers have grown up on the Internet and are accustomed to a high level of digitization. They are also likely to hang out on popular social media platforms, allowing themselves to be influenced by the latest trends there. This is driving an entirely new perspective on the e-commerce space, one that appears to be expanding with more advanced technology such as AR/VR, social commerce and the Metaverse.
Valuation has improved over the past year, reflecting the significantly stronger growth prospects. Several stocks in this extremely diverse industry are worth buying today, but we’ve picked two: PDD Holdings and eBay.
About the Industry
This industry includes companies which operate as as an online and mobile commerce company like Alibaba Group Holding Limited (BABA).
Current Trends Driving the Internet-Commerce Industry
Zacks Industry Rank Indicates Strength
The Zacks Internet - Commerce Industry is a rather large group within the broader Zacks Retail And Wholesale Sector. It carries a Zacks Industry Rank of #59, which places it in the top 23% of 250+ Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. So the group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates positive near-term prospects.
E-commerce being in the top 50% of Zacks-ranked industries is the result of its relative performance versus others. What we’re seeing in the aggregate estimate revisions is significantly stronger sentiments, particularly from July. The aggregate earnings estimate for 2024 is up 37.1% and for 2025 up 24.4%. Given the rate cuts expected this year, things look set for a second half.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Leads on Shareholder Returns
Over the past year, the Zacks Electronic - Commerce Industry has been traded at a significant premium to both the broader Retail and Wholesale sector and the S&P 500.
The stocks in this industry have collectively gained 50.1% over the past year, compared to the 29.2% gain for the broader Zacks Retail and Wholesale Sector and the 27.1% gain for the S&P 500.
One-Year Price Performance
Image Source: Zacks Investment Research
Current Valuation Attractive
On the price-to-forward 12 months’ earnings (P/E) basis, the industry trades at a 26.07X multiple, which is a discount to its median level of 27.14X over the past year, although still a premium to the S&P 500’s 21.2X and the broader retail sector’s 22.71X.
Forward 12 Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research
2 Stocks Worth Considering
The improving prospects and attractive valuation indicate that there a number of stocks currently worth picking. Especially because of the significant variety that exists in this industry in terms of lines of business, business model, location and so forth.
PDD Holdings Inc. (PDD): Based in Dublin, Ireland, PDD Holdings, formerly Pinduoduo (which was based in Shanghai, China until Mar 2023), owns and operates a portfolio of businesses. Its Pinduoduo e-commerce platform offers agricultural produce, apparel, shoes, bags, mother and childcare products, food and beverage, electronic appliances, furniture and household goods, cosmetics and other personal care, sports and fitness items, as well as auto accessories. Its Temu platform is an innovative online marketplace capitalizing on online ads, social media, coupon codes and games to attract and retain users.
Building on the strong demand and improving consumer sentiment it witnessed in the fourth quarter, the company is now focused on delivering high quality products and solutions by harnessing the latest technologies. PDD will be spending RMB10 billion in 2024, its second straight year of investment at this scale with an eye on technology enhancements and its core agricultural operations. Management believes this will improve customer experiences and build sticky communities with positive implications for both buyers and sellers.
In the last 30 days, analysts have raised PDD’s 2024 estimate by $1.29 (18%) and 2025 estimates by $1.75 (19.6%). Analysts currently expect the company to grow revenue and earnings by a respective 49.8% and 29.1% this year and another 35.3% and 25.8%, respectively, in the following year.
The shares of this Zacks Rank #1 (Strong Buy) company are up 65.3% over the past year.
Price & Consensus: PDD
Image Source: Zacks Investment Research
eBay Inc. (EBAY): San Jose, California-based eBay operates an online marketplace platform connecting buyers and sellers in the U.S., UK, China and Germany. It also has a suite of mobile apps facilitating these operations.
eBay is taking steps to utilize AI, particularly generative AI to improve customer experience and boost results. Its multi-warehouse shipping optimization is helping sellers manage their businesses more efficiently while providing more reliable delivery timelines to customers. The company has also recently initiated restructuring actions that will reduce its workforce by a 1000. Management believes this will align costs to growth targets and drive profitability in the age of AI.
In the last 30 days, the Zacks Consensus Estimate for 2024 has increased 5 cents (around 1%). For 2025, it is up 08 cents Analysts expect earnings growth of 9.2% in 2024 and 7.5% in 2025.
The Zacks Rank #2 stock is up 20.1% over the past year.
Price & Consensus: EBAY
Image Source: Zacks Investment Research
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.