The e-commerce sector is set for significant growth this holiday season, driven by strong household finances, rising online shopping, and the growing influence of social media and direct-from-brand stores. These trends, coupled with deal-seeking behavior, present attractive investment opportunities in the expanding e-commerce market.
Therefore, to get ahead of the holiday boom, investors should consider strong e-commerce stocks such as MercadoLibre, Inc. (MELI) and Shopify Inc. (SHOP) for solid gains this holiday season.
The upcoming holiday season is set to significantly benefit e-commerce, with early shopping trends and a focus on travel and experiences indicating strong transaction volumes. In response, brands are adapting marketing strategies to integrate popular themes and enhance audience engagement. As a result, U.S. e-commerce revenue is projected to rise by $657.8 billion, or 53.8%, from 2024 to 2029.
Notably, U.S. online retail sales are projected to reach $1.2 trillion this year, representing a $108 billion (9.8%) increase from last year. This growth is driven by increased internet penetration, Gen Z consumers, competitive discounts, the influence of social media, and the rise of buy now, pay later options, all of which are boosting consumer spending and enhancing investment opportunities.
Considering these conducive trends, let’s examine the fundamentals of the two above-mentioned e-commerce stocks.
MercadoLibre, Inc. (MELI)
Headquartered in Montevideo, Uruguay, MELI operates online commerce platforms in Latin America. It operates in two segments: Mercado Libre Marketplace and Mercado Pago FinTech platform. The company offers an automated online marketplace for buying and selling, as well as a financial technology platform for online transactions and payments.
In terms of the trailing-12-month gross profit margin, MELI’s 54.70% is 47.4% higher than the 37.11% industry average. Its 3.71% trailing-12-month Capex / Sales is 24.5% higher than the 2.98% industry average. Also, the stock’s 6.98% trailing-12-month Return on Total Assets is 71.9% higher than the 4.06% industry average.
During the fiscal second quarter that ended on June 30, 2024, MELI’s net revenues and financial income increased 41.5% year-over-year to $5.07 billion. The company’s gross profit rose 29.2% over the prior-year quarter to $2.37 billion.
For the same quarter, its income from operations stood at $726 million, up 8.5% year-over-year. Additionally, its net income and EPS increased 102.7% and 103.1% from the year-ago values to $531 million and $10.48, respectively.
Street expects MELI’s EPS for the quarter ending September 30, 2024, to increase 36.9% year-over-year to $9.80. Its revenue for the same quarter is expected to grow 39.7% year-over-year to $5.25 billion. It surpassed the EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 62.9% to close the last trading session at $2,066.04.
MELI’s POWR Ratings reflect its strong fundamentals. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MELI has a B grade for Growth, Momentum, Sentiment, and Quality. Within the B-rated Internet industry, it is ranked #25 out of 52 stocks. To see MELI’s ratings for Value and Stability, click here.
Shopify Inc. (SHOP)
SHOP is a commerce company that provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia-Pacific, Australia, China, and Latin America. The company's platform enables merchants to display, manage, market, and sell their products through various sales channels and manage products and inventory, process orders, and payments.
In terms of its trailing-12-month Return on Total Capital, SHOP’s 6.27% is 124.6% higher than the 2.79% industry average. Likewise, its 16.40% trailing-12-month net income margin is 352.7% higher than the 3.62% industry average. The stock’s 0.74x trailing-12-month asset turnover ratio is 18.8% higher than the 0.62x industry average.
SHOP’s revenues for the second quarter which ended on June 30, 2024, increased 20.7% year-over-year to $2.05 billion. Its adjusted gross profit rose 24.6% over the prior-year quarter to $1.05 billion. SHOP’s adjusted net income and adjusted net income per share attributable to shareholders were $345 million and $0.26, reflecting year-over-year increases of 93.8% and 85.7%, respectively.
For the quarter ending September 30, 2024, SHOP’s EPS and revenue are expected to increase 12.5% and 23.2% year-over-year to $0.27 and $2.11 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, SHOP’s stock has gained 55.8% to close the last trading session at $80.27.
SHOP’s POWR Ratings reflect this optimistic outlook. It has an A grade for Sentiment and a B for Momentum. SHOP is ranked #19 out of 26 stocks in the Internet – Services industry. To access the additional grades of SHOP for Growth, Value, Stability, and Quality, click here.
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MELI shares were trading at $2,064.08 per share on Friday afternoon, down $36.13 (-1.72%). Year-to-date, MELI has gained 31.34%, versus a 21.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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