The stock market party never seems to end. The S&P 500 and Dow Jones Industrial Average are notching high after high as Wall Street bets on a solid post-pandemic recovery. Both indices are up over 26% over the last 12 months, making many investors happy.
High-quality growth stocks -- like Square and Shopify -- have delivered even more impressive returns. Shopify's stock has rallied 50% from a year ago, while Square's share price has almost doubled.
One thing is for sure: This isn't a good time for bargain-hunting. But there's no harm watchlisting your favorite companies -- and waiting for the right moment to pounce. This opportunity may present itself during a market crash, which tends to drag down all stocks -- including great ones. With that in mind, here are two compelling stocks from my personal watch list.
1. Sea Limited
The last five years have been truly transformational for Sea Limited (SE -2.78%). From a fledgling gaming start-up, Sea has evolved into a tech giant with growing e-commerce, food delivery, and digital-payments businesses.
Garena, Sea's gaming arm and its most profitable business, is one of the world's biggest game distributors. For that, it can thank Chinese tech titan Tencent (TCEHY -1.61%) -- a major shareholder that happens to be the largest video game company in the world. Sea's relationship with Tencent has given it the rights to distribute some of the world's most popular games in Southeast Asia. But Garena is more than just a video game publisher. It's also a developer of hit titles like Free Fire -- one of the world's highest-grossing mobile games.
While Garena keeps raking in the dough for Sea, its online retail arm -- Shopee -- is a cash-burning machine. That's because, like Alibaba (BABA -3.41%), Sea uses money from its core profit engine to fuel its side bets. So Sea has been throwing cash into Shopee, hoping to unlock a future earnings driver.
So far, this strategy has worked wonders. In just over six years, Shopee has grown into the leading e-commerce player in Southeast Asia. That's an impressive feat, considering Shopee had to overtake Alibaba-backed Lazada along the way. Shopee is now setting its sights on other markets, such as Latin America, where it's growing fast.
Over the last decade, Sea has executed extraordinarily well. The next decade looks just as promising.
For starters, Garena continues to generate plenty of cash -- it generated $2 billion in earnings before interest, tax, depreciation, and amortization (EBITDA) in 2020. This gives Sea the financial firepower to scale its younger ventures, and transform them into mature and profitable businesses. On top of that, Sea is riding secular growth trends, such as rising internet penetration in Southeast Asia and Latin America. This suggests Shopee will likely keep growing at high double digits over the next five to ten years.
Sea's digital finance business -- Sea Money -- could see even stronger momentum. Sea Money already provides a fast-growing mobile wallet service in a growing number of markets. It plans to expand into digital banking as evidenced by its digital banking license acquired in Singapore late last year.
While Sea has a bright future, much of it is already baked into the stock's valuation. At $318 a share, Sea trades at over 23 times sales. That's incredibly pricey, considering profitable tech giant Alibaba trades at less than a fifth of that multiple.
Like Sea, Etsy (ETSY -3.62%) has benefited from the rapid growth of the e-commerce industry. But while Sea's online retail play centers around an Amazon-like "everything store," Etsy is on a markedly different path. The company focuses on offering one-of-a-kind, authentic goods that come with a personal touch. By doing this, Etsy avoids pitting itself directly against retail Goliaths like Amazon and Walmart. Instead of competing on price and convenience, Etsy makes personalization, customization, and uniqueness its greatest strengths.
Thanks to this strategy, Etsy has attracted a core customer base willing to pay a premium for tailor-made products. In turn, this has drawn millions of independent merchants to Etsy, which they see as a lucrative marketplace. By rewarding sellers for their creativity, Etsy fulfills its mission "to keep commerce human," i.e., de-commoditizing the products we buy online.
Etsy's success speaks for itself. Between 2015 and 2020, Etsy's revenue rose a staggering 532%, hitting $1.7 billion last year. That's incredible growth, but much suggests Etsy is just getting started. In fact, Etsy is rapidly expanding its business, both in existing markets -- the U.S. and the U.K. -- as well as new international markets.
Etsy is pairing organic growth with strategic acquisitions, thus accelerating its pace of expansion. Since 2019, Etsy has snapped up three online retailers -- Reverb, Depop, and Elo7. Those deals will help Etsy capture a bigger slice of the total addressable market for one-of-a-kind goods, which it estimates to be over $2 trillion. In 2020, Etsy recorded $10 billion in gross merchandise sales -- capturing just 1% of the overall market opportunity.
With such immense potential, it's not surprising that Etsy trades at an mouth-watering 56 times earnings. Some would argue this price is justified, considering the company's long-term prospects. But to stay on the safe side, I'll wait for a better entry point.