Investing in e-commerce stocks is not as easy as it appears, especially if you are into long-term investing. There are a lot of value-trap names and volatility in this space. The narratives for top e-commerce stocks can change quickly with a single earnings report.
Still, we know how big online shopping has become for consumers, both domestically and abroad. As a result, e-commerce stocks continue to show promise and opportunity. That’s particularly true after the 2022 bear market pulverized many of these names.
We are trying to avoid the low-valuation, low-growth names. For instance, while eBay (NASDAQ:EBAY) stock is trading quite well from a technical perspective, its growth forecasts are quite low (although positive) for 2023 and only show modest potential in 2024.
For some investors, that’s exactly what they’re looking for. However, for this article, we’re going to focus on the top digital economy stocks that are setting up the future of shopping.
Shopify (NYSE:SHOP) shares were pulverized in the 2022 bear market, as the stock suffered a peak-to-trough decline of 86.6%. For a stock to lose almost 90% of its value and still have actual potential, Shopify stock is in rare company.
Investors have seized the potential in that selloff, with shares now up about 200% from the low.
When Shopify last reported earnings, it delivered a slight top- and bottom-line beat but grew sales by almost 26% year over year while focusing on job cuts and bottom-line expenses. Getting its costs under control while focusing on growth will be key to satisfying shareholders in the short to intermediate term.
Analysts expect about 20.20% revenue growth this year and 17.90% revenue growth next year, with a continued focus on its bottom line.
More importantly, Shopify is making it significantly easier for small-, medium- and large-scale businesses to get up and running in the e-commerce world. Shopify is making it possible for just about anyone (or any company) to get started in online sales.
How can we talk about investing in e-commerce stocks and not touch on Amazon (NASDAQ:AMZN) at some point? Amazon has become a global icon in online sales, with its market capitalization swelling to almost $1.4 trillion.
If there were any worries about consumer spending due to economic worries, Amazon may have just put the concern to rest. That’s as the company just had its best one-day sales tally ever, with the first day of its Prime Day sale totaling $12.7 billion. That’s up 6% year over year, while customers spent another $6.3 billion on the second (and final) day.
Amazon said Prime members bought more than 375 million items worldwide and spent $19 billion in two days.
When Amazon last reported earnings, it delivered a healthy top- and bottom-line beat. Consensus expectations continue to call for accelerating revenue growth and a bottom-line recovery.
Profit expansion mostly hinges on the company’s Amazon Web Services cloud unit. Amazon already taps into many business opportunities and remains an attractive long-term tech conglomerate.
China is loaded with potential as well as risk. There’s a bureaucratic risk, like when the Chinese government made it a point to target Alibaba (NYSE:BABA) a few years ago. However, there are also economic concerns.
When Starbucks (NASDAQ:SBUX) last reported earnings, it cited China for powering its top- and bottom-line beat. However, management also cited a potential slowdown in the country.
When Alibaba reported in mid-May, it delivered a top- and bottom-line beat but grew sales just 2% year over year.
There are some short-term concerns here, but long-term investors may see this as an opportunity. Alibaba is focused on delivering value and is spinning off its cloud unit (Amazon’s cloud unit helped deliver immense stock gains over the last decade).
Further, the valuation is quite attractive for long-term buyers who believe in the company’s potential. Analysts expect about 9% revenue growth this year and next year but about 12% earnings growth in those years.
Finally, Alibaba stock trades at less than 10 times this year’s earnings forecast.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.