The internet has had a profound impact on society, affecting how business is done and how people interact with each other. And it has changed the investing landscape, catapulting relatively new businesses to greater heights.
Without a doubt, one of the most obvious trends that has shaped the global economy over the past couple of decades has been the growth of online shopping. And investors are likely trying to find ways to invest behind this shift in consumer behavior.
With that being said, here are three top e-commerce stocks to buy right now.
1. Amazon
When thinking of e-commerce businesses to add to your portfolio, I'm sure Amazon (AMZN 3.43%) immediately comes to mind. From starting as an online store that sold just books in the 1990s, this tech juggernaut has evolved into one of the greatest success stories in corporate history. In fact, since its initial public offering in 1997, the stock has skyrocketed 131,000% (as of July 24).
Customers can find almost anything they want on Amazon's website, sold from either the company itself or from millions of third-party sellers. The business generated $81 billion in combined net sales from online stores and third-party seller services in the first three months of 2023. Driving sales is Amazon's Prime membership, which offers free same-day, next-day, and two-day delivery, bolstered by the company's massive logistics footprint.
According to Insider Intelligence, Amazon is by far the most popular online shopping destination, as 38% of all U.S. e-commerce sales occur on the site. That's a tremendous lead. And because 85% of all retail sales in the U.S. still occur in a brick-and-mortar setting, Amazon is easily well-positioned to capture a large chunk of the sector's growth.
Although Amazon shares are up 53% in 2023, they remain 31% off their all-time high. This presents investors with a rare opportunity to buy a stake in a dominant internet business at a discount.
2. Etsy
While Amazon focuses on low prices and fast shipping, Etsy (ETSY 0.34%) takes a different approach. The online marketplace is all about unique and special merchandise. In fact, a 2022 survey conducted by the company found that 87% of Etsy buyers said the platform has items they can't find anywhere else. That's certainly indicative of Etsy's value proposition.
This is a special operation because the business doesn't actually own any inventory. Etsy simply connects its 95.5 million active buyers with 7.9 million active sellers, taking fees from the transactions that happen. The result is a highly scalable, asset-light business.
In the last three years, Etsy has generated $1.9 billion in cumulative free cash flow, compared to $6.6 billion in revenue. And excluding 2022, when a one-time impairment charge negatively impacted profits, the business has seen its operating margin steadily expand over the years.
Etsy's leadership team, led by CEO Josh Silverman, is very optimistic. They view Etsy's total addressable market, as measured by gross merchandise sales for relevant products sold online, as $466 billion. Based on 2022 figures, Etsy has a tiny 2.5% share, resulting in a huge opportunity for global expansion.
The stock is down an eye-watering 67% from its peak price set in November 2021, but it has still returned 124% over the past five years, beating the Nasdaq Composite index.
3. Lululemon
With 42% of fiscal 2023 first-quarter revenue coming from the digital direct-to-consumer channel, Lululemon (LULU 1.31%) is another e-commerce stock to consider buying right now. The business did have 662 physical stores scattered across the world as of April 30, but customers who shop online are extremely important to the company's success.
Lululemon's quarterly revenue has roughly tripled in the last five years to $2 billion, impressive gains that can be attributed to the strength of the brand. Because the company doesn't rely on third-party retailers to push its merchandise, it has full control over pricing decisions, which helps maintain a premium brand image.
Management expects the top line to grow at a rapid pace over the next few years. Executives will be focused on doubling digital sales between fiscal 2021 and fiscal 2026. Because these transactions typically carry a higher gross margin than in-person shopping, investors should expect Lululemon's profitability to get a boost as well.
To say that Lululemon has been a great investment would be an understatement. In the last five years, shares have soared 203%. And the company's impressive financial performance has led to strong momentum this year. So, the stock isn't cheap, trading at a trailing price-to-earnings ratio of 51 right now. Nonetheless, investors might still want a piece of such an impressive business.
