Shares of Asian e-commerce, financial services, and gaming company Sea Limited (SE 3.31%) spiked higher on Monday morning after getting upgrades from prominent investment firms. As of 9:45 a.m. ET, Sea stock was up 11%.
The analyst community is taking note
Sea stock is enjoying positive commentary from multiple analysts this morning. On one hand there's Divya Gangahar of Morgan Stanley, who recommends buying, according to StreetInsider. And on the other hand there's Sachin Salgaonkar of Bank of America, who also recommends picking up shares. Both analysts gave Sea stock a price target of $70 per share, according to TipRanks.
Gangahar had an optimistic outlook for Sea's e-commerce platform, Shopee. Investors have avoided Sea stock in fear that it was losing market share to competitors such as TikTok. However, among other things, Gangahar notes that TikTok just raised its commissions in the key Indonesian market, which could benefit Shopee.
Because they work for prominent firms, both Gangahar and Salgaonkar have big audiences. Therefore, when they suggest that Sea stock could still have about 16% more upside from where it trades right now, investors tend to get excited, which is what is driving Sea stock today.
Are things better today than last week?
In my view, the market has been overreacting to competitive fears for Sea stock. Earlier this year, Sea stock hit an all-time low (cheap) price-to-sales valuation, as the chart shows.
SE PS Ratio data by YCharts
There are still plenty of positives with Sea's business and I consequently believe the stock has been undervalued. Therefore, I don't necessarily disagree with the new price targets from the analysts.
That said, investors need to keep level heads. Analysts typically raise and lower price targets based on what the stock is doing more than what the business is doing. In this case, Sea stock was already up about 40% year to date before the new, higher price targets came out.
I'd say that nothing materially changed over the weekend with the competitive landscape for Sea. Analysts could simply be becoming more bullish because of the recent price appreciation. Therefore, investors will want to focus on Sea's fundamentals more than the commentary from analysts.
