The e-commerce trend continues to take share from traditional retail. Statista estimates a 9.79% compounded annual growth rate in worldwide e-commerce revenues between 2024 and 2029. Therefore, we are in the early innings of this shift and undervalued e-commerce stocks will outperform.
Several reasons exist for the momentum in e-commerce growth. First, e-commerce’s value proposition keeps consumers coming back and attracts new customers. The convenience and shortened delivery times make it a hassle-free way to shop.
Secondly, the breadth of selection allows the consumer to have better choices and price points. Thus, the consumer gets a better experience than in a traditional brick-and-mortar store, where only a few brands are available.
While investors have fully valued some e-commerce stocks for their growth, others are underappreciated. The following three undervalued e-commerce stocks are examples, considering their growth potential. They present substantial upside from current levels.
eBay (EBAY)
Although one of the pioneers of e-commerce is not the force it once was, eBay (NASDAQ:EBAY) is still one of the most undervalued e-commerce stocks to buy today. Indeed, the stock has been unloved for a while due to its lower revenue growth compared to peers.
Enter the bull case. The investor flight has led to a dirt-cheap valuation, making the company one of the most undervalued e-commerce stocks. As of this writing, EBAY stock trades at 10 times forward earnings and has a price-to-free cash flow of 13. These valuations paint a dire picture, yet that’s not the case. In 2023, it reported 4% revenue growth on an FX-neutral basis in 2023.
eBay is still a juggernaut in terms of scale, with a presence in 190 countries. This unique scale allows the e-commerce platform to drive relevant experiences for buyers. Besides, management is working to reinvent the business to accelerate growth.
Management is leveraging its scale to drive new capabilities. For instance, the company has been building up its advertising segment, which is a $1.4 billion business today. Other emerging businesses include global payments, financial services, and shipping.
At the Morgan Stanley Technology, Media & Telecom Conference, the company outlined confidence in returning to positive GMV growth in the second half of this year. Besides, they expect 60 to 100 basis points of margin expansion and will continue returning capital via buybacks. Altogether, these catalysts will propel this undervalued stock higher.
MercadoLibre (MELI)
The Amazon of Latin America has corrected after reporting earnings, presenting a buying opportunity. Since earnings, MercadoLibre (NASDAQ:MELI) stock declined from over 1,800 to 1,550 after an earnings miss. However, the miss was due to a one-off $351 million charge related to certain legal and tax disputes.
Fundamentally, MercadoLibre remains an excellent e-commerce business. It serves customers in 18 countries with over 218 million unique active users in 2023. Gross merchandise volume rose from $34.4 billion in 2022 to $44.7 billion in 2023.
The impressive growth highlighted in Q4 2023 results underscores MELI stock as one of the most undervalued e-commerce stocks. In the quarter, commerce revenues grew 48%. Notably, its largest market, Brazil, achieved 46% year-over-year (YOY) growth. Other key markets, Argentina and Mexico, grew 29% and 51%, respectively.
Additionally, the e-commerce leader in Latin and Central America saw faster volume growth on its platform. In fiscal year 2023, items sold on the platform increased 22%. Year-end growth was even stronger, with 29% YOY growth in Q4 2023.
Management expects innovations like the Meli+ loyalty program to drive further growth. Also, they anticipate technology investments in managing pricing, selection, and inventory to drive the customer value proposition.
MercadoLibre is one of the most undervalued e-commerce stocks, having grown revenues by 37% in FY2023. Analysts expect EPS to grow 43% in 2024 and predict over 25% upside.
Alibaba (BABA)
Focusing on valuations alone, Alibaba (NYSE:BABA) is one of the most undervalued e-commerce stocks. Indeed, it’s dirt-cheap trading at a forward P/E of 9. Impressively, the e-commerce giant holds over $38 in cash per share, which is over 50% of the share price.
Clearly, the stock is extremely undervalued. Management decided to take advantage of this discount by adding an extra $25 billion authorization to its buyback program. That brings the total available for buybacks to $35 billion.
Another sign of confidence in BABA stock has come from the cofounders. In January, Jack Ma and Joe Tsai bought a significant number of shares worth over $200 million. Also, Tsai returned to Alibaba in September 2023 as chairman as part of a leadership reshuffle.
In addition, Alibaba is in excellent shape to capitalize on the growth of online commerce in China. It’s the largest e-commerce player in China through platforms Taobao and Tmall. Although the company has been losing share to Pinduoduo, owned by PDD Holdings (NASDAQ:PDD), it is taking measures to reinvigorate its business.
The company is actively improving customer engagement and boosting merchant participation. In the long term, Alibaba will grow as the e-commerce market expands from the current 30% of the total. These long-term tailwinds and the $35 billion repurchase provide fundamental catalysts for the stock.
On the date of publication, Charles Munyi did not hold (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.
