Cross-border e-commerce company Global-E Online (GLBE -2.15%) has been one of the more volatile names in the market, trading between $24 and $84 per share in the nearly one year it's been public. Since January, investors have had a particularly tough time; shares are down more than 40% in just over two months.
But context is always crucial because sometimes stock prices are irrational, regardless of how the underlying company is doing. Buying broken stocks when the business itself is thriving can be a fast track to building wealth. Here is why Global-E Online could be falling and why investors should consider buying this dip.
What does Global-E Online do?
Global-E Online is a cross-border platform for e-commerce that removes the obstacles for a person in one country to shop online from a merchant in another country. Global-E takes care of language and currency differences, taxes, and shipping or returns. The company works with merchants in the U.S., Europe, and Asia and enables consumers from 200 markets worldwide to shop online.
Image source: Getty Images.
This makes it much easier for people to buy things online from foreign merchants, and the company takes a percentage of the transaction as its revenue. Global-E's ability to navigate these unique obstacles in each market has appealed to prominent merchants like Shopify. Their decision to invest in and partner with Global-E instead of developing their solutions in-house signals the value that Global-E's platform delivers.
Why is the stock falling?
Sometimes, you're stuck trying to swim against the current, and that seems to be happening with Global-E Online. The Nasdaq has been down nearly 20% since the beginning of 2022, putting it roughly in bear market territory. You will see in the chart below that Global-E has done far worse than the Nasdaq, down more than twice as much.
There are two likely explanations for this; first, Global-E has a market cap of just under $5 billion, so it's a small- to mid-cap stock, which can be more volatile than the broader index. It could quickly shoot lower when the market struggles and outperform it when things turn around.
Second, the ongoing geopolitical tensions between Russia and Ukraine could be impacting sentiment toward the stock. The United Kingdom is Global-E's largest revenue market, at 56%. The company gets another 17% of revenue from the European Union. These conflicts can cause countries to isolate themselves during times like now, which could hurt how the business performs in the near term. If the tensions escalate across Europe, it will likely hurt Global-E's business.
Business is firing on all cylinders
I want to emphasize "near-term" because the business has been operating at a high level to this point. Global-E Online recently closed out its fiscal 2021 year with fourth-quarter earnings. The total value of transactions on its platform, called gross merchandise volume (GMV), grew 66% year over year in Q4 and 87% for the entire year to hit $1.4 billion.
Gross profit for the entire year increased 110% from 2020 to $91.4 million; profits growing faster than revenue is a good sign that the business is on a path to profitability.
Management also put out strong guidance for 2022, including GMV that is expected to grow to $2.4 billion, a 71% increase. Global-E estimates that its total addressable market opportunity worldwide is $736 billion in GMV, so it's clear how early the company could be in its growth.
Is the stock a buy today?
Like most growth stocks, the hammering of the stock has dramatically lowered its valuation, and shares have gone from a price-to-sales ratio of 50 to less than 18. I could certainly see the argument for buying shares today for a company growing 60% to 70% per year with a long runway ahead.
With that said, the current external forces impacting the share price are unpredictable at best, so investors should prepare for more downside in the short term. A dollar-cost averaging strategy can be a helpful tool when you're accumulating stocks for the long term in a chaotic short-term environment.
