How do you know when a good thing has run its course? That's the quandary heaps of potential investors of Global-e Online (GLBE 4.44%) find themselves in right now. Shares of the international e-commerce specialist soared 56% in the first three months of 2023.
Global-e Online's bull rally has been lots of fun for investors who began the year with the stock already in their portfolio. Unfortunately, potential investors who were late to the party are wondering if they've already missed out.
Can Global-e Online's rally continue, or did the latest run-up make it too hot to handle again? Let's start by looking at what drove the stock higher in the first place.
Why Global-e Online is soaring
Global-e Online operates a platform for international direct-to-consumer merchants that is built to facilitate cross-border e-commerce. Fear of a global recession pushed the stock lower late last year, but the results the company reported in March suggest demand for its services is stronger than ever.
During the last three months of 2022, the gross value of all merchandise sold through its platform climbed 66% year over year. The company hasn't had to lower its take rate to facilitate growth either. Revenue rose faster than gross merchandise value (GMV), and adjusted gross profits soared 77% year over year.
More big gains ahead?
Management is forecasting a deceleration this year, but it isn't one to worry about. In 2023, Global-e Online expects GMV to land in a range between $3.36 billion and $3.52 billion. The midpoint of this estimate implies growth of more than 40% this year.
Looking further ahead, the facilitator of international e-commerce has a lot of room to grow. The global e-commerce industry size reached $13.5 trillion last year, and it's expected to grow at a rate of 15% annually through 2030.
Investors can find encouragement in the company's successful acquisition of Flow in early 2022. Flow is a U.S.-based technology solution that emerging brands were already using to facilitate cross-border sales. Last year, revenue from U.S.-based merchants soared 145% to $174 million, making it the company's largest merchant-outbound region at the moment.
An important supporter
When it comes to international e-commerce, there aren't many players larger than Shopify (SHOP 4.24%). The company facilitates online sales for millions of merchants all over the globe. Way back in 2021, Shopify took a large stake in Global-e and made it an exclusive provider of certain cross-border services for its international merchants.
This February, Shopify raised its stake in Global-e to 12.8% of the company. The successful acquisition and integration of Flow was a big reason Shopify made the investment. With one of the world's largest e-commerce operations supporting its expansion, this stock's best days are most likely still to come.
Still a smart buy?
There are good reasons to expect rapid sales growth from Global-e Online, but some lofty expectations are already baked into the stock price. Following a big run-up this year, shares of Global-e Online are trading at 12.4 times trailing sales.
This is a frighteningly high multiple to pay for a business that lost about $195 million last year and still doesn't know when it will be able to make ends meet. If there's an unexpected slowdown over the next several years, the stock could crash.
With a large addressable market and backing from Shopify, there's a good chance that this stock can grow into its present valuation and provide market-beating gains over the long run. Given the risks, though, investors should only add relatively small amounts of this stock to an already diverse portfolio.
