Wall Street ran away from e-commerce stocks last year as a growth hangover hit the sector. But those fears over the short term have generated some excellent opportunities for patient investors. Consumers are still spending freely in the online niche, despite a slower expansion rate than appeared likely in early 2022.
With those positive trends in mind, let's look at a few standout stocks in the sector that are showing solid sales and earnings results. Read on for some good reasons to buy Lululemon Athletica (LULU -0.33%) and Etsy (ETSY 3.43%) right now.
Lululemon Athletica is no stretch
Lululemon shares have been under pressure since the management team lowered its profit margin forecast in early January. The athleisure specialist is seeing extra cost and supply chain pressures at a time when more consumers are getting cautious around spending. There's always the risk of having too much inventory when a recession hits, too.
But Lululemon is still projecting strong profitability that easily surpasses Nike's. It helps that the yoga apparel specialist gets more of its business from direct e-commerce sales, which in Q3 accounted for 41% of total revenue.
The chain in January also raised its sales outlook and boosted expectations for net profit, which shows that the gross margin downgrade isn't a sign of collapsing demand or of trouble in passing along higher prices. Instead, it's mainly about the company just dealing with a temporary cost spike.
In fact, Lululemon has a bright long-term growth outlook that involves pushing into new markets, demographics, and apparel categories. Looking back in a few years, investors will likely be glad that they were owners of this business through that sales expansion.
Etsy has options
Wall Street has been too focused on the short-term issues affecting Etsy's business. Sure, the e-commerce platform reported declining sales volumes in Q3. But sales are still up over 130% in the Q3 period compared to two years earlier.
Etsy is also holding on to most of the new buyers it attracted during the boom times in 2020 and 2021. Its 2% downtick in the buyer pool looks great compared to eBay's 11% slump.
Etsy is also likely to see expanding profit margins as the company adds more seller services and boosts its fees over time. Gross profit margin rose in the nine months that ended in late September, although those gains were swamped by the company's aggressive spending on growth initiatives.
Cautious investors might prefer to wait for more concrete signs that Etsy is ready to generate sustainably positive annual earnings. These signs could start showing up as early as the company's upcoming Q4 earnings report covering the selling period that ran through late December.
That update could show solid sales volumes, given the positive comments recently from peers such as Shopify. But patient investors can still look ahead to the platform's bright future as it gains more market share, improves its seller services, and begins returning more cash to shareholders in the form of dividends and stock buybacks, just as eBay does today.
