Please ensure Javascript is enabled for purposes of website accessibility

2 E-Commerce Stocks to Consider Buying Right Now

By Parkev Tatevosian, CFA – Oct 21, 2021 at 8:30AM

Key Points

  • Amazon and eBay are two e-commerce companies that investors could consider buying.
  • They are trading at relatively inexpensive valuations.
  • They have the long-run secular tailwind of increased spending online.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The two e-commerce giants operate on different business models, but both produce excellent profits.

E-commerce companies offer a potentially lucrative area for investors. The segment was steadily growing its share of overall sales and then got a burst of growth at the pandemic onset when folks looked to avoid physical stores. The trend is unlikely to reverse, and e-commerce sales are estimated to continue taking a more significant percentage of overall sales in the long run.

That being said, two stocks that are likely to provide solid returns to investors in that environment are Amazon (AMZN -0.59%) and eBay (EBAY 0.49%)

A person opening their packages.

Image source: Getty Images.

Amazon is growing revenue faster

Global behemoth Amazon is growing revenue rapidly and efficiently. Over the last decade, Amazon has grown revenue at a compound annual rate of 27.3%. That took revenue from $48 billion in fiscal 2011 to $386 billion in 2020. What's more, the business is growing efficiently, and operating income in that same time increased from $862 million to $22.9 billion, increasing the operating profit margin from 1.8% to 5.9%. 

One of the main drivers of efficiency for Amazon is skillfully adding fulfillment capacity. As you can imagine, adding warehouses near customers can reduce shipping time and the costs of shipping. However, in the near term, when it spends to build a new fulfillment center, Amazon has to spend on building, hiring, and training staff, and it takes time to get it all up and running. Over time, those investments have paid off, leading to an expanding operating profit margin.

In the last four quarters, Amazon has hired more than 450,000 employees. That's impressive considering the widespread complaints from businesses saying they can't find enough workers to fill open jobs. That means Amazon will likely be more competitive in its order fulfillment in the near term, which could make the difference between making the sale and losing a sale to a competitor

That speed of delivery might be an insurmountable competitive advantage. It won't be easy for other e-commerce companies to match the speed and convenience Amazon offers. 

eBay has higher profit margins

eBay is another e-commerce company poised to do well for shareholders. The company operates on a different business model than Amazon. Mainly, it takes an asset-light approach by leaving shipping and handling to sellers and buyers to determine. That relieves the need to operate expensive fulfillment centers. eBay maintains a platform where buyers and sellers meet, and eBay takes a percentage of each transaction as a fee for its service. 

The decision has had the desired effect. While Amazon is increasing its operating profit margin, it is still nowhere near the level eBay produces. In fiscal 2020, eBay's operating profit margin was 26.4%, while Amazon's was 5.9%.

Similar to Amazon, eBay could do well against competitors during supply chain disruptions. First, it will not endure higher shipping expenses because it leaves that up to sellers. Second, in times of short supply, eBay benefits because resellers flood its platform with products that are out of stock at popular retailers and sell them at a markup. That phenomenon is likely to be prevalent for the next few quarters as the world grapples with shortages caused by the pandemic. 

eBay and Amazon stock are inexpensive

Both eBay and Amazon have excellent near-term and long-term prospects. To make matters better for investors, they are trading at relatively inexpensive valuations. 

Charts comparing Amazon and eBay on their price to earnings ratio.

Data by YCharts.

Amazon is trading at a relative discount to its forward price-to-earnings ratio of close to 100 late last year. And eBay is selling at nearly one-third the forward price-to-earnings ratio of Amazon. Given that they are generating healthy profits, have solid short-term and long-term prospects, and have relatively inexpensive valuations, eBay and Amazon are two e-commerce stocks that investors should consider buying right now. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends eBay and recommends the following options: long January 2022 $1,920 calls on Amazon, short January 2022 $1,940 calls on Amazon, and short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.