Disclaimer: The following article presents subjective opinions of the author and should not be mistaken for investment advice.
Singapore’s Sea Ltd. has extended its bear run hitting a new low of US$87.60 on its shares last week — a level last seen in the spring of 2020, before the pandemic induced demand elevated its stock in the vicinity of US$400 last year.
For stockholders who lost 76 per cent since November highs, it may be a poor consolation but despite the tumbling stock prices, the situation that Sea is in — much like the entire e-commerce market — is much better than it seems.
Morgan Stanley, whose analysts continued to defend both in their latest report based on their in-house e-commerce industry model, appears to share this view.
The only way is up
Obviously, two years of restrictions on movement due to Covid-19 have helped the growth of the industry that is built on home delivery. But the border reopening certainly will not cause e-commerce to retreat, as it has been expected to grow rapidly even before the virus hit.
In fact, as you may notice, the industry hasn’t outgrown the earlier bullish projections, though it has already clinched a larger share of total global retail, as in-person shopping saw a painful drop.
“While stay-at-home trends were a driver of outsized growth in 2019 to 2021, we see a stronger-for-longer setup of a double-digit CAGR through 2026.” The firm also highlighted a significant five-year growth opportunity for e-commerce in less-penetrated emerging markets.
Source: Morgan Stanley & Seeking Alpha
It’s going to be a long time before online retail sees signs of saturation and Sea, with its hit app Shopee, is one of the best-positioned international players to increase its share in some of the most rapidly growing markets.
In fact, it is one of very few companies which have seen considerable success beyond their core markets, with Morgan Stanley placing it among other major players like Amazon and Argentinian Mercado Libre.
When is the stock going back to US$360?
While the company’s performance should not disappoint in the coming five years — or more — this confidence does not extend onto its shares, though.
It is not because the market may continue to underestimate or misjudge it, but rather due to the macroeconomic and political factors at play.
The world is not only shaken by the Russian invasion of Ukraine and the resulting uncertainty that may extend for years to come (as it is unlikely that sanctions will be eased anytime soon). It also has to grapple with high inflation, that forced central banks to restrict money supply which has for years been one of the major contributors to the stock rallies, especially in the US.
The near US$400 price per Sea’s share witnessed in October 2021 may or may not return depending on conditions other than the company’s own performance.
We’re not entirely out of the pandemic either, with China struggling to contain the latest Omicron outbreaks, which could throw its entire massive economy off balance and have far-reaching global consequences.
It is also not certain how our immunity will fare with time and whether we might be seeing new crises elsewhere, particularly heading into the autumn/winter season of 2022 (it goes without saying that any new restrictions could boost e-commerce stocks again).
Therefore, while Sea’s future does look rather bright, even as Shopee is still technically posting losses, whether that translates into investment opportunities remains to be seen.
Analysts may remain bullish, but so were they six months ago…
Featured Image Credit: Michael Nagle via Bloomberg
