Estimated read time: 3 minutes
Publication date: 29th Dec 2020 14:36 GMT+1
Taking a long-term view to investing remains the best bet for wealth creation. You need to identify companies that have an expanding addressable market which will help them grow revenue and earnings faster than the overall market.
Here we look at three such companies in the e-commerce space that are well poised to increase investor wealth in the upcoming decade.
The first company on the list is Shopify (NYSE: SHOP), which is also Canada’s largest company in terms of market cap. Shopify stock has risen 208% in 2020 and has gained a monstrous 4,670% since it went public back in mid-2015.
While the COVID-19 pandemic has hurt several sectors, it has acted as a tailwind for companies with an established online presence including Shopify. The Canadian tech giant provides cloud-based tools for the merchants on its platform that help them run an online business.
In 2019, Shopify sales were up 47% at $1.58 billion driven by a 49% rise in its gross merchandise volume (GMV). Comparatively, its earnings fell 22% to $34.3 million due to its focus on acquisitions and inorganic growth.
In the first three quarters of 2020, Shopify sales soared 82% year-over-year to $1.95 billion and its GMV more than doubled in the last two quarters. This stellar growth meant Shopify’s net income stood at $292 million year-to-date.
As Shopify has a high price to sales multiple of 52.6x the stock remains vulnerable in a broader market sell-off. However, every price dip must be viewed as a buying opportunity.
Another stock to keep your eyes on is Chewy (NYSE: CHWY), a company that is in the pet supply business. According to a research report by the Americans Pet Products Association, pet spending in the U.S. is forecast to touch $99 billion in 2020.
Chewy is expected to record sales of $7.06 billion in fiscal 2021, up 45.7% year-over-year while analysts estimate sales growth at 24.7% in 2022. While Chewy is still unprofitable its net loss narrowed to $32.8 million in the October quarter, compared with a net loss of $79 million in the prior-year period.
Chewy is now looking at aggressively expanding into the pet health segment which will be a key revenue driver in the long-term. Shares of Chewy have gained 260% year-ot-date and the stock is trading at a forward price to sales multiple of 6.1x which is cheap compared to its growth estimates.
The final company on the list is Etsy (NASDAQ: ETSY), a stock which has surged 330% in 2020. Etsy is an online marketplace where people can buy and sell unique products, for example jewellery or online ladies dresses. In 2020, Etsy increased its active buyer base by 55% as shoppers had no option but to buy goods online.
In the first nine months of 2020, Etsy’s sales have risen 102% year-over-year and analysts expect sales to grow by 97.3% in 2020. While revenue growth is expected to decelerate to 12.3% to $1.81 billion, the company is already profitable and earnings are expected to rise at an annual rate of 57% in the next five years.
We can see all three companies on the list have gained solid momentum in 2020. While these stocks may move lower in case the market tanks once again, companies in the e-commerce space should consistently outpace the S&P 500 index over the long-term, given their secular tailwinds and multiple growth drivers.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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