3 Great Long-Term E-Commerce Investments

E-commerce is quickly gaining market share in the retail industry, and this fact makes for good long-term investments. Looking long-term, which three companies are likely the best investments in this space?

A company with substantial growth drivers remaining
Amazon
(NASDAQ: AMZN  ) is a $140 billion company with $66.85 billion in trailing 12 months revenue that is growing at more than 20% year over year. Many consider Amazon to be an overpriced stock. It trades at 2.1 times sales which is higher than the S&P 500 average at 1.5 times sales, yet with greater growth than the overall market some might say that a premium is well-deserved.

Regardless of how you value Amazon, it is clearly a business being built for tomorrow. In the last year alone, Amazon has spent more than $22 billion in R&D and SG&A combined , which means that it is making large investments. Moreover, Amazon still has large markets to penetrate.

For the most part, Amazon's sales come from media and general merchandise. Yet, Amazon is now entering the $570 billion a year grocery business , a segment of the market that could spark accelerated growth.

Then, there are also other large industries such as auto and advertising. In the last year, Google has created over $55 billion in revenue, much of which comes from advertising. This could be the next space for Amazon to capture. Combined with its current growth and entrance into grocery, Amazon is a disruptive and innovating retailer that could still grow and return large gains for many years to come.

Might not be the largest, but valuation makes it attractive
Overstock
(NASDAQ: OSTK  ) is not the first company that most think of in the e-commerce space. It is a smaller company, but it is also an undervalued company with Amazon-like growth.

Overstock trades at just 0.58 times sales, yet it saw both 22% top-line growth and significant margin expansion during its most recent quarter . Overstock has produced such fundamental growth for most of the last year. Thus, it has returned stock gains over 175% during the last 12 months.

However, since reporting earnings back in July, shares of Overstock are 15% lower. This pullback might present a good entry point to take advantage of the operational improvements that Overstock is exhibiting. Long-term, its future does not look as solidified as Amazon. In the near-term, Overstock looks to be golden, and cheap.

Ready to surpass Wal-Mart?
Alibaba is the third pick in the e-commerce space, but clearly, it is not yet a public company. Unlike Amazon, Alibaba's revenue is not created on the sale of products, but rather units sold and advertising. However, as merchandise sales grow larger, so does the company's revenue.

With that said, Alibaba is a company with explosive growth. During its last quarter, sales reached $1.38 billion on 71% year-over-year growth. Alibaba is also highly profitable with net income of $669 million in the same period .

This brings me to the investment opportunity. In a previous article I explained how Alibaba with greater growth is worth the same premium as Facebook. Yet, with an IPO expected at $100 billion, Alibaba will be significantly cheaper. Thus, with $7.4 billion in expected annual revenue through December, Alibaba might be a good investment (13.5 times sales ).

Looking into the future, Alibaba might be an even better investment. CEO Jonathon Yu expects Alibaba to nearly triple its volume of transactions to about $490 billion by 2016. It is investing $16 billion in logistics and support. Thus, Alibaba would surpass Wal-Mart as the world's largest retailer.

Then, there is one last piece of the Alibaba puzzle, which is Yahoo! (NASDAQ: YHOO  ) . Granted, Yahoo! is not an e-commerce company, but it does hold a 24% stake in the massive company. Therefore, if Alibaba is estimated to be worth over $100 billion , then Yahoo!'s stake becomes nearly equivalent to its entire market capitalization.

Yahoo! has already been talking about monetizing the investment, and has already sold some of its stake . Once Alibaba becomes public Yahoo! can begin trading some of its stock for cash. This would allow Yahoo! to make large investments and possibly achieve growth to match the many changes that Marissa Mayer has implemented since becoming CEO.

Final thoughts
Amazon and Alibaba are clearly e-commerce leaders and retail giants of the future. Overstock might never match either in pure size but because of its valuation and growth it is a good investment right now.

Hence, there is value in the fast growing e-commerce space. Because of its aggressive growth investors might find returns regardless of what happens with the global or U.S. economy. Thus if you are considering an investment in retail or e-commerce, these three companies – along with Yahoo! because of its Alibaba investment -- might be a good place to look.

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