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2 Is It Wise to Catch This Falling Knife, or Should You Look Elsewhere?

The retail e-commerce segment as a whole is growing at a 16% clip, giving companies that operate in the space every advantage to grow rapidly. Yet (NASDAQ: OSTK  ) has proved in 2014 that it's not taking advantage of this growth, and with there being so many great U.S. growth companies in the space, like Zulily (NASDAQ: ZU  ) and (NASDAQ: AMZN  ) , along with foreign names like Vipshop (NYSE: VIPS  ) , it might now be time to give up on

Not much to like has seen its stock decline 44% in 2014 alone, with the majority of this loss coming after a very disappointing holiday quarter. As a result, expectations were lowered significantly for the company's first-quarter report, but as we witnessed on Thursday, still couldn't deliver.

In the company's first quarter, it grew revenue just 9%, to $341 million. That fell below the rate of growth for e-commerce as an industry. Moreover, its net income was nearly cut in half as its promotional activities increased to drive traffic to the site. Specifically, sales and marketing expenses rose 25%, and the company placed a large emphasis on couponing and site sales.

The U.S. king of e-commerce is trying to grow, but the competitive landscape has grown, and there are other companies with a better edge.

Amazon remains the quintessential e-commerce play, a company that's expected to grow at 20% for each of the next two years. Not to mention, Amazon also has a fast-growing cloud business in Amazon Web Services, or  AWS, which provides a bit of a hedge to its core business, with a valuation of $50 billion.

With that said, some might suggest that is a good investment due to its stock declines, but with Amazon also trading at a near-20% discount to its 52-week high, investors might find better value and upside in its consistency.

2 far better small-cap options
As previously mentioned, there are a lot of good values in the space that weren't necessarily relevant back when was showing promise nearly a decade ago. Zulily is one of these companies.

Unlike, Zulily has a niche market that doesn't necessarily compete directly against Amazon. Zulily buys and sells merchandise in bulk, targeting moms and children, and it operates with a subscription-like service.

During its last quarter, active customers and revenue doubled to 3.2 million and $257 million, respectively. In its infancy, Zulily has spent aggressively, but now net income is starting to grow rapidly, including 293% in its last quarter.

Looking ahead, Zulily is a company that's expected to grow at 65% this year, and like, its shares have been cut nearly 40% from its highs in 2014. However, unlike, this decline has been unrelated to growth, and more a result of a momentum stock sell-off, which should imply upside moving forward for this fast-growing company.

Lastly, we have a Chinese company called Vipshop, which might be on pace to become the next Amazon or Alibaba. The company sells more than 350 brands at different times at super-low prices to 5.7 million customers. The low prices keep customers coming back for more, while the large quantity of sales keeps brands eager to work with the company.

During 2013, revenue soared 145% to $1.7 billion, and in the fourth quarter, net income increased by 300% to $25.4 million. The company has seen its profit margin rise rapidly, from negative 0.3% in 2012 to positive 3.8% last year.

With that said, Vipshop's revenue growth over the last four years is very similar to Amazon's in the late 1990s, when Amazon was of similar size. Vipshop hasn't seen the large pullback of other e-commerce companies. It's just 10% off its 52-week high. However, given this growth, investors might find significantly larger gains in the $8.7 billion company as it grows larger.

Final thoughts
In looking at, investors must wonder what it really offers. The company doesn't have impressive growth, its margins are poor, and it now faces a slew of new competitors aside from Amazon. doesn't have an edge.

Amazon, Zulily, and Vipshop are all far better-performing companies, but in particular, Vipshop's current growth rate and addressable market in China could lead to far greater days for the stock. Why try to catch the falling knife in when the industry is ripe with opportunities like Vipshop?

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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