Investors should add this much smaller company to their watchlist.
Few companies are as dominant as this one. Amazon (AMZN -0.69%) That's right: the tech giant is now worth nearly $2 trillion. This huge figure is due to the skyrocketing value of its stock, which has soared 1,000% in the past 10 years and 7,400% in the past 20 years.
this “The Magnificent Seven“The stock has rewarded shareholders in an incredible way, but investors may want to consider other e-commerce businesses that are currently off the radar and may be better buying opportunities than Amazon.
Amazon's dominance cannot be overstated.
First, I think we should take a moment to thank Amazon. When the company first launched in the 1990s, it only sold books online. Now, you can buy just about any item you can think of on this popular website.
This broad reach means that almost 40% of all dollars spent online in the United States goes through Amazon.com — a staggering statistic. Even more remarkable, Amazon's online store generated $235 billion in net sales in the past 12 months.
The company's relentless focus on low prices and a wide selection of products – and if that wasn't enough to give customers a great shopping experience, Amazon's massive and developed logistics footprint means fast, free shipping is hard to compete with.
Besides e-commerce, Amazon also has a strong position in cloud computing, streaming entertainment, digital advertising, etc. Amazon has multiple growth engines that can drive its growth.
A niche player is overwhelmed
Amazon is obviously getting a lot of attention, but investors are Ötzi (ETSY -0.20%)The company's shares have taken a big hit, currently trading at 80% below the all-time high they hit in November 2021.
Etsy operates an online marketplace for selling unique, handmade and vintage goods. This specialization sets the business apart from Amazon's mass-market focus. In fact, research shows that 83% of Etsy shoppers find products on the site that they can't find anywhere else. Amazon is a force to be reckoned with in the e-commerce world, but at least Etsy has found a way to stand out.
This company Economic MoatAs of March 31, the platform has 96.4 million buyers and 9.1 million active sellers. This two-way ecosystem is powerful. Network Effects.
Because Etsy doesn't manage its own inventory, it doesn't need to invest in warehouses or delivery trucks, which allows it to operate an asset-light business and generate steady profits. Over the past five years, the company's operating margins have averaged an astounding 15.9%.
As I mentioned earlier, Etsy's stock has been in a big tailspin. Here's where the opportunity lies for investors. The stock is trading at extremely cheap levels. Its current forward price-to-earnings ratio of 12.5x is a 43% discount to the forward price-to-earnings ratio. S&P 500But based on the factors we've discussed, it's easy to argue that Etsy is an above-average business.
The difficulty with buying the stock right now is that it's hard to know when things will improve, especially as the company struggles to achieve real growth — total merchandise sales fell about 4% year over year in the first quarter of 2024 — so Etsy could keep struggling for a while longer.
But for investors with a five-year investment horizon, the stock could do well. According to the Federal Reserve Bank of St. Louis, online shopping accounts for just 15.9% of all U.S. retail sales. On a global level, the percentage is likely even lower. This creates a favorable backdrop for Etsy to achieve healthy, profitable growth over the long term.
I believe that once the company gets back on track, its valuation multiple will follow suit, making now a good time to buy shares in the company.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, serves on The Motley Fool's board of directors. Neil Patel or his clients have no investments in any of the stocks mentioned. The Motley Fool holds shares in and recommends Amazon and Etsy. The Motley Fool has a disclosure policy.
