© Reuters. 2 Wildly Overvalued E-Commerce Stocks to Avoid Like the Plague
The e-commerce industry’s growth is gradually slowing down, with an increasing number of people returning to in-person shopping thanks to solid progress on the vaccination front. As a result, e-commerce companies with weakening financials—Sea Ltd (SE) and MercadoLibre (NASDAQ:)—now look significantly overvalued at their current price levels. Therefore, we think these stocks are best avoided now. Read on.The e-commerce industry benefited handsomely from the pandemic-related lockdowns last year, with a drastic shift in consumer preference toward online shopping. According to Digital Commerce 360 estimates, consumers spent $861.12 billion online with U.S. merchants in 2020, representing a 44% increase year-over-year.
However, with significant progress on the vaccination front and the consequent easing of social distancing restrictions, brick and mortar stores have been seeing rising foot traffic over the past few months. The return to store shopping has led to a considerable slowing in online sales growth. Online sales growth is expected to be 15.6% this year and 10% next year, declining from 29.5% last year.
Given this backdrop, we believe e-commerce companies Sea Ltd. ADR (SE) and MercadoLibre, Inc. (MELI), which look highly overvalued at their current price levels considering their weak fundamentals and growth prospects, are best avoided.
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