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Here's Why Newegg Shares Crashed in September

By Anders Bylund – Oct 7, 2021 at 1:43PM

Key Points

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Investors don't quite know what to make of this online retailer despite two full decades of operating history.

What happened

Shares of Newegg Commerce (NEGG -2.40%) fell 26.8% in September 2021, according to data from S&P Global Market Intelligence. The e-commerce veteran entered last month on a full head of steam but found it hard to keep the good times rolling. Newegg's first earnings report as a publicly traded company provided no support for the stock amid a market-wide retreat from this type of high-priced growth stock.

So what

In the first half of 2021, Newegg saw net sales rise 40% year over year to $1.2 billion. Net income increased by 14% to $22 million. The company had 4.2 million active customers as of June 30.

These six-month figures placed Newegg's stock at the lofty valuation ratio of 194 times annualized earnings. Hence, the stock was set up to fall when investors started retreating from high-priced tickers in September. At the same time, the shares traded at just 3.2 times projected full-year sales, leaving investors confused. Is Newegg a pricey growth ticker or a sober value investment? In the end, Mr. Market decided to play it safe and drive Newegg's stock prices lower.

A tiny shopping cart full of goods stands on the keyboard of a much larger laptop computer.

Image source: Getty Images.

Now what

Newegg is a complicated stock to own right now. The global shortage of semiconductor manufacturing capacity is limiting the supply of consumer technology devices and computer parts, which restricts Newegg's most important sales channels. On the upside, the company has shown an ability to find supplies of popular but hard-to-find items such as high-end graphics cards. That's a result of the company's deep supplier connections, built over two decades of operating history as a private company.

At the moment, Newegg is investing heavily in future growth opportunities. The product catalog was recently expanded by partnering with new suppliers in China, and the company is now sharing its observed market data with vendors in order to deepen Newegg's partnerships. These efforts won't move the revenue needle right away, though their setup costs are digging into the company's bottom line.

That's the right attitude for a company with a long history and a promising long-term future. My own Newegg shares have fallen 20% since I picked them up in mid-August, but I see no reason to panic. If anything, October looks like a good time to pick up more shares at a handsome discount.

Anders Bylund owns shares of Newegg Commerce, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Newegg Commerce, Inc. Stock Quote
Newegg Commerce, Inc.
$1.63 (-2.40%) $0.04

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