Many e-commerce stocks soared last year as the pandemic forced more people to shop online. But as more businesses reopened, many of those stocks lost their luster as investors fretted over post-pandemic slowdowns.
However, investors shouldn't simply sell all of their e-commerce stocks as the pandemic passes. After all, the global e-commerce market could still expand at a compound annual growth rate (CAGR) of 16% from 2021 to 2026, according to Research and Markets, as the generational disruption of brick-and-mortar retailers continues.
Instead, investors should still buy and hold e-commerce stocks that could still head much higher over the next 10 years. I believe these three high-growth e-commerce stocks fit that description: MercadoLibre (MELI -1.98%), Sea Limited (SE 1.20%), and Coupang (CPNG -1.46%).
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1. MercadoLibre
MercadoLibre is the largest e-commerce company in Latin America. It operates its marketplace across 18 countries, but it generates most of its revenue in Brazil, Argentina, and Mexico. It also processes digital payments with its Mercado Pago platform.
MercadoLibre went public in 2007 at $18 per share, but its stock is now worth more than $1,500. Investors might look at those massive gains and think they've missed the boat, but MercadoLibre could still head much higher over the next decade, for three simple reasons.
First, MercadoLibre's market cap of $75 billion is still tiny compared to the valuations of the world's other e-commerce titans. For example, Amazon and Alibaba are worth $1.6 trillion and $460 billion, respectively.
Second, MercadoLibre's main market is still growing. Latin America only has an e-commerce penetration rate of about 8% today, according to Morgan Stanley analysts, but that figure could double to 16% by 2025.
Lastly, MercadoLibre doesn't face any meaningful competitors in Latin America. Its smaller rivals can't match its sales, while Amazon and other overseas competitors have repeatedly failed to crack the market.
MercadoLibre's stock might seem expensive at 11 times this year's sales, but its long-term growth potential easily justifies that premium valuation.
2. Sea Limited
Singapore-based Sea Limited owns Shopee, the largest e-commerce platform in Southeast Asia and Taiwan, and the Sea Money digital payments platform. It also owns Garena, the mobile game publisher that created the hit battle royale game Free Fire.
Sea supports the expansion of its unprofitable Shopee and Sea Money divisions with Garena's profits, which have skyrocketed ever since Free Fire's launch in 2017. It's also been gradually reducing Shopee's losses per order by dialing back its aggressive discounts, promotions, and subsidies.
Sea's business might seem wobbly since it's heavily dependent on Garena's ability to launch more hit mobile games in the future. Its upside potential might also seem limited since the stock has already soared from its IPO price of $15 a share to about $350 in just four years. But like MercadoLibre, Sea is still smaller than the industry's top dogs, with a market cap of about $190 billion.
Shopee's core market also has plenty of growth potential. A recent Bain & Company report estimates that e-commerce sales across Southeast Asia could still double from 2020 to 2026 as internet penetration rates and income levels continue to rise. That growth could be amplified by Shopee's planned expansion across Latin America and Europe over the next decade.
Sea's stock might seem a bit frothy at 21 times this year's sales, but a company that generated triple-digit percentage sales growth over the past three years arguably deserves that higher valuation.
3. Coupang
Coupang is the top e-commerce company in South Korea. It established a first-mover's advantage and built a massive logistics network. About 70% of the country's population now lives within seven miles of its logistics centers.
Coupang's Rocket delivery service can fulfill most of its orders within a day. Its expanding ecosystem includes Rocket Fresh for grocery deliveries, Coupang Eats for restaurant deliveries, and its Coupang Play streaming video platform. Taking a cue from Amazon, it bundles together its Fresh, Play, and other perks together in a Prime-like "Rocket WOW" subscription service.
Coupang went public back in March at $35 per share, but it's since dropped below its IPO price on concerns about the saturation of the South Korean market, its ability to expand overseas, and its lack of profits.
But I still believe Coupang's stock could head higher over the next decade, for three reasons. First, the expansion of its ecosystem with more services will boost its revenue per shopper in South Korea and offset its slower growth in active shoppers. Second, Coupang is gradually expanding overseas into Taiwan, Japan, and Southeast Asia. It could gain a lot more shoppers if it can replicate its success in South Korea in any of those markets.
Lastly, Coupang only has a market cap of $45 billion, or just 2.4 times this year's sales. That makes it much cheaper than MercadoLibre and Sea, and it strongly indicates its stock could skyrocket once its growth stabilizes.
