Are we in a bull market? That's the question on a lot of investors' minds as the S&P 500 continues gaining momentum. The benchmark index is up nearly 16% so far this year after dropping double digits last year.
As a market rebound outpaces improvements in the economy, the worry is that valuations could become inflated. In the previous bull market, many valuations rose unsustainably, and that led to a bust for many high-flying, unprofitable growth stocks. They're still recovering.
Even as the market rises, there are bound to be dips along the way. You can take advantage of a correction by scooping up great stocks that may seem too expensive right now. Shopify (SHOP 1.11%), Costco (COST 1.01%), and Global-e Online (GLBE 2.44%) are excellent choices.
1. Shopify: E-commerce is still underpenetrated
E-commerce is now a household word, and in many countries, it might be a challenge to find anyone who's never bought anything online. So it might be hard to believe that e-commerce still only accounts for less than 20% of total retail sales worldwide. There was a sharp jump in 2020, as you might have guessed, but it still only rose from 13.8% to 17.8%. It's expected to gradually increase over time, reaching 24% of sales by 2024.
There are several names you can probably think of offhand that will be some of the biggest beneficiaries of this trend. One of them is Shopify, which is well-positioned to increase revenue and profits as more people shop online.
Shopify stock tanked last year, losing nearly 80% of its value as it experienced sluggish growth and mounting losses. It took some strong action to rectify its problems, and investors are getting excited about it again.
In the first quarter, Shopify demonstrated that its recovery plan is bearing fruit. Revenue increased 25% over last year, and the company became free-cash-flow positive with $86 million.
It launched several innovative new features that should appeal to a new clientele. One is CCS, or Commerce Components by Shopify. This plan offers components from Shopify's services that can be easily integrated via APIs into any client's preferred back-end tech setup. That could draw business from companies that don't need Shopify's full-service solutions but could use some of its features.
Shopify also sold off its logistics network, which it had invested in heavily over the past several years. As losses mounted, however, the company needed to cut costs and focus on its core offerings. Investors cheered the move, which should boost profitability going forward.
The company is in a great position now, but as investors have sensed an opportunity following the stock's steep decline, shares have already recovered nearly 80% year to date. At this price, shares trade at a price-to-sales ratio of 13.4. That's a little too pricey, despite the company's potential, but in the event of a correction, investors should take full advantage.
2. Costco: Steady, consistent, and expensive
Costco is an all-weather stock that adds value to almost any kind of portfolio. It has seriously outperformed the market over many years, and it still has tons of future growth potential.
As objective valuation measures go, Costco stock sells at a premium to the broad market and similar companies. Its consistency and growth potential make it worth more, but with Costco stock up 19% in 2023, it looks quite expensive.
That's because the stock is rising even as sales growth is flattening out. Sales increased 1.9% in the fiscal 2023 third quarter (ended May 7) with comps growth a minuscule 0.3%. Earnings per share (EPS) fell year over year from $3.04 to $2.93.
Costco's feeling pressure, but it's short term in nature. The bottom line was affected by a one-time charge related to Costco shutting down a company-owned logistics network it developed to negotiate around supply chain logjams, working out to $0.50 per share. Although the trailing 12-month price-to-earnings ratio is high right now, the forward-looking valuation, which takes into account projected earnings for the next 12 months, is close to its five-year average.
Data by YCharts.
Any way you cut it, Costco stock looks expensive right now. It has an unbeatable model with its memberships and low pricing, and it still has massive expansion opportunities. It also pays a dividend (and a very attractive special dividend on occasion). If Costco's stock takes a dip, you'll want to buy some.
3. Global-e: The classic growth stock
Global-e is the classic high-growth stock with incredible opportunities, high sales growth, and . . . no profits.
One thing that sets apart unprofitable stocks going nowhere from unprofitable stocks that can make it is whether a net loss might reverse in the foreseeable future. Global-e is demonstrating a real working model that can be profitable.
The company markets cross-border solutions for e-commerce companies, which includes services like instant global shipping calculations with customs and checkout in around 100 currencies. It's an easy integration process with an existing e-commerce setup, and it opens up an online retailer to entirely new markets.
Global-e boasts A-list clients like LVMH, Disney, and Adidas, and plenty of smaller companies. It also has a partnership with Shopify for its millions of users. More join all the time. This has led to a soaring top line, and it's posted at least 50% sales growth every quarter since going public in 2021. Revenue increased 54% year over year in the first quarter this year. That's expected to slow as the economy remains sluggish, but management raised its full-year guidance after the Q1 report.
It's still posting a net loss, but that improved from $54 million in the year-ago quarter to $43 million in Q1, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surging year over year from $3.3 million to $14.5 million.
Global-e stock isn't cheap. It's up more than 100% in 2023 and trades at a price-to-sales ratio of over 15. When it goes on sale, don't miss out on the opportunity to buy shares.
