Investors have lost enthusiasm for many e-commerce stocks lately. Most of these businesses are enduring growth hangovers following the huge sales gains they saw during the pandemic. Their earnings have been pressured by that slowdown, as well as by rising costs associated with building out massive, complicated delivery networks.
Yet the long-term outlook for e-commerce is bright, and there is a lot of room for digital sales to grow as they account for more of the total retailing industry. With that big picture in mind, let's look at a few attractive e-commerce stocks. Read on for good reasons to buy Chewy (CHWY 2.99%), Home Depot (HD 0.94%), and Etsy (ETSY 0.34%).
1. Chewy
Investors don't have high expectations for Chewy's upcoming earnings report. The stock has declined significantly in recent weeks, ahead of its Q2 update set for Aug. 30. Yet that slump could represent a buying opportunity for fans of the pet supply seller.
After all, Chewy's last earnings report contained mostly good news. Sales growth accelerated to 15% through late April. Gross profit margin expanded, too, thanks to rising prices and slightly higher demand for discretionary pet product purchases.
Yes, the company is still losing customers. Its active shopper base fell 1% last quarter after declining by the same amount in 2022. But solid demand, including for its subscription-based service, suggests this slump will end soon. Add in an upcoming expansion into Canada, and you've got a few strong catalysts to propel this stock higher.
2. Home Depot
Home Depot is among the largest e-commerce sellers on the planet thanks to its dominant market share in the home improvement industry. And the stock is valued at a compelling price right now due to worries about rising interest rates and the impact they'll have on home sales.
Home Depot has been through cyclical downturns before, though. And management is confident that they'll thrive through this one, too. "We remain very positive on the medium-to-long-term outlook for home improvement and our ability to grow share in a fragmented market," CEO Ted Decker told investors in mid-August.
Patient investors can buy the underperforming stock now and collect a generous dividend yield while they wait for the short-term volatility to pass. Shares are priced at about 2 times sales today, down from 3 times sales in early 2022.
3. Etsy
Investors with a higher risk tolerance might consider Etsy stock right now. Shares have declined sharply due to sluggish volume on its e-commerce marketplace. But the company recently returned to buyer growth following over a year of modest losses. It remains profitable, too, with net income landing at 11% of sales over the first half of the year.
Management has big plans for adding value to the marketplace for both buyers and sellers over the next year or so, including by improving the search and browse functions. It may take some time before those initiatives move the needle on sales, but you'll receive a big discount for that lack of clarity. The stock is down nearly 40% so far in 2023 despite Etsy's 9% sales increase.
