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Why Sea Limited Stock Just Popped 10%

By Rich Smith – Jul 8, 2020 at 2:33PM

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Wall Street just gave Sea stock two big thumbs up.

What happened

Shares of Singapore-based e-commerce, payments, and online gaming company Sea Limited (SE 3.44%) continued their fantastic run higher on Wednesday, rising more than 12% in early trading and remaining up 10.6% as of 2 p.m. EDT.

And you have Wall Street to thank for that.

Man in suit showing two thumbs up.

Image source: Getty Images.

So what

This morning, in a note covered on TheFly.com, Citi was cited nearly doubling its $79 price target on Sea Limited shares to $138 apiece. As the analyst explained, lockdowns of physical retail in Southeast Asia during the corona crisis have shifted a lot of activity online, helping to grow sales volumes at Sea's Shopee service and attracting new gamers to Free Fire. Even after coronavirus is gone, moreover, Citi believes these customers will stick around, leading to " further demand growth and revenue momentum" for Sea going forward.

Separately, Bank of America Securities (BofA Securities) raised its own price target on Sea stock -- to $135 a share, reports StreetInsider.com. Echoing Citi's observations, BofA Securities noted that "web tracking data, and our own channel checks indicate Sea's e-commerce unit Shopee [is] emerging as the clear market leader in the fast growing ASEAN e-commerce sector."

Now what

Both analysts rate Sea Limited stock "buy," and with Sea shares having more than tripled in value over the past year, that seems like a pretty popular call. One caveat needs to be raised, however:

Although Sea's business is growing briskly -- sales up 9x in 5 years -- this stock remains both deeply unprofitable (more than $1 billion in net losses over the past 12 months) and free cash flow negative ($340 million in cash burnt in the same time period). For the time being, that doesn't seem to worry investors, but if the day should come that folks start demanding to see profits at Sea Limited, and Sea is unable to produce those profits, this stock could retreat in a hurry.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Sea Limited. The Motley Fool has a disclosure policy.

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