Various technology stocks are starting to become a tad on the expensive side. While many firms may grow into their expanded multiples soon, investors should be careful about paying too high a premium. Overestimating a firm’s growth prospects can have rather nasty consequences, especially if there’s already a great deal of momentum.
In this piece, we’ll look at three cheap e-commerce stocks that I find many may be at risk of underestimating. Indeed, digital spending is in a rather fragile state after the inflation sandstorm we’ve navigated of late.
Moving ahead, though, I’d look for such spending to enjoy some form of bounce-back. In the early stages of a bull market, consumer spending could shift very suddenly. And when it comes to the following cheap e-commerce stocks, many may be caught by surprise once we hear the bull roar at its loudest.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is the lone e-commerce company in the group known as the Magnificent Seven. Though AMZN stock hasn’t surged as quickly as rivals, a 23% year-to-date return is nothing to sneeze at! Just a few percentage points below all-time highs, I’d look for AI bets and increased consumer spending to jolt the cloud and e-commerce businesses.
In many ways, Amazon seems to be a slightly more cyclical Magnificent Seven company. When an economic slowdown hits and consumers put their wallets away, Amazon orders may be limited to necessities. Amazon shoppers may be in better shape to make better use of their Prime memberships once they see higher wages and savings, lower prices or, at the very least, slower price increases.
Even if consumers don’t start doubling down on discretionary spending, Prime members are poised to keep getting spoiled. For example, a full-year subscription to food-delivery service Grubhub is now included with Prime.
As we go into the second half, I think AMZN stock could prove cheap relative to its growth and timely catalysts that could be in store.
eBay (EBAY)
eBay (NASDAQ:EBAY) looks quite compelling for investors seeking deeper value. Currently, shares are going for just 10.58 times trailing price-to-earnings (P/E). The legendary internet auction site that boomed in the lead-up to the dot-com bust has been underwhelming and rather volatile.
Lowered second-quarter guidance and underrated AI investments could help sellers list more goods faster, potentially setting the stage for a nice surprise in the second half.
However, eBay’s decision to stop accepting American Express (NYSE:AXP) after a swipe-fee disagreement could bite by year’s end. Undoubtedly, American Express brings in incredibly affluent users, many of whom are collectors spending a pretty penny with their Platinum cards.
My guess is eBay’s Amex breakup will hurt it more than it’ll hurt Amex. Though, when EBAY stock sunk 1.4% on a huge up-day for the rest of the market, I think the breakup is already baked into the price.
Etsy (ETSY)
Etsy (NASDAQ:ETSY) is the go-to e-commerce platform for buying a wide range of hand-crafted goods, vintage artistic pieces and crafting materials. Lately, though, you’re probably likelier to see drop-shipped, mass-produced items taking up the digital real estate that should have gone to small mom-and-pop creators.
The good news is that Etsy is already taking action to bring back its platform’s creative appeal. Perhaps AI could play a growing role in monitoring sellers and ensuring they adhere to the company’s policies. For now, it’s unclear how many digital consumers the site could bring back as it returns to its roots and stops selling the type of stuff that you can just find on Amazon.
In any case, investors seem to be discounting the potential for a consumer spending resurgence. At 18.3 times forward P/E, ETSY stock looks quite cheap here, especially as the e-commerce platform becomes more AI-savvy.
On the date of publication, Joey Frenette owned shares of Amazon and American Express. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
