After steadily growing for the better part of the last decade, the e-commerce space really took off last year during the Covid-19 pandemic. With physical stores closed and many residents urged to stay at home, disposable income increased and the only outlet was online shopping.
If we take a look at the chart for the ProShares Online Retail ETF (NYSEARCA: ONLN), we can see it basically flat from its inception in mid-2018 through the start of the pandemic. After an initial drop as part of a stock flight, it continued to rise more than 200% during the first quarter of this year. But as with many sectors and industries that benefited from the societal and economic changes in the past year, 2021 saw a return to the middle as the turbo-boosting effects of stay-at-home orders expired in the face of widespread vaccine spread and a return to something close to normalcy. .
But that doesn’t mean there’s no value yet to be gained from the space and that your wallet shouldn’t have some e-commerce exposure as we head into the new year. On the contrary, it is an industry that is expected to continue to perform strongly in the coming years, hence two names that deserve attention.
It’s been a tough few weeks for Etsy investors who have had to watch their positions drop by as much as 30% since the end of November. But at least they were pulling back from new all-time highs, something not many e-commerce names had seen in months, and it also opens up the possibility that those of us who are considering a new position around these levels can get a discount.
The likes of Needham have been coming out with bullish comments on Etsy in recent weeks, predicting that “the online retailer model will win the holiday season amid the industry’s supply chain turmoil.” Analyst Anna Andreeva and his team reiterated their buy rating on Etsy in November, while simultaneously raising their target price to $265 based on a 14x 2022 EV/sales multiple. Andreeva noted at the time that “we believe a premium to our world (6x) is guaranteed due to the strength of Etsy and the potential to improve the highest revenue/profitability of new brands.”
The fact that Etsy shares are down 15% since the time these comments were made makes it even more appealing, with a price target suggesting there is an upside of about 20% to be had from where the shares closed last night.
Unlike Etsy, Chewy’s stock peaked last February and has fallen more than 50% since then. Arguably the pandemic has made pet food stores a wonder, but they still managed to increase their third-quarter revenue by 24% compared to the same quarter last year.
In light of that report, released earlier this month, Piper Sandler’s team reiterated the buy rating for the stock. While he lowered his target price to $70 from $100, analyst Peter Keith continues to take a cautiously bullish tone on the company’s outlook for the year ahead. In a note to clients, he said, “The third quarter saw built-in sales but emerging margin pressure worsens in the fourth quarter and continues throughout most of 2022. On the positive side, KPIs related to customer spending, retention and new additions all remain in good health. On the negative side, The Chewy model (which primarily sells branded consumables) will likely see continued marginal pressure if inflation persists.”
It’s a fair warning on the inflation front, but as long as you haven’t held a Chewy stock during this year’s drop, you can look at opportunity through a very different lens than a courier. Since then, the $70 price target for Piper has topped the $75 for Guggenheim, indicating that there is an upside of more than 30% to be obtained from the current levels.
There’s no doubt that its growth rate has reported quite a bit since the aftershocks peaked, but there is a strong argument that this has already been priced in equities and that any big moves in the near term are likely to be to the upside.