Here’s the next stock I’m going to buy

Many stocks have taken it on the chin recently, and e-commerce stocks have been no exception. Etsy fell more than 75% from its all-time high, and even a stalwart like Amazon dropped nearly 45% from its peak.

However, there are a few e-commerce stocks that, despite strong sales, continue to perform. A particularly attractive option is Global-e online (GLBE 4.60%), which is down almost 80% from its peak, but the company continues to grow. With the thesis on track, investors should take advantage of the discounted price.

Why Global-e Online fell in 2022

Global-e fell alongside many e-commerce stocks on fears of a possible recession. Consumers are more likely to save extra money for a rainy day instead of spending it on discretionary purchases. Other essentials like groceries and gasoline are also more expensive due to inflation, so consumers are spending more on their necessities and less elsewhere. Whichever way you slice it, an economic downturn is bad for e-commerce stocks in the short term.

Since Global-e offers services that facilitate the international expansion of e-commerce businesses, the company would also experience a drop in business. Revenue is tied to the Gross Merchandise Value (GMV) it facilitates, so if its customers do less business overseas, the company will see its revenue plummet.

It has a significant concentration of income in the United States and the United Kingdom, and both countries could face difficult economic conditions. As a result, Global-e would be particularly affected in the short term if businesses in these regions experience difficulties.

Given this uncertainty, Global-e lowered its forecast for 2022 to the first quarter. The company lowered its full-year GMV forecast by 5% to $2.34 billion, while its revenue forecast fell 6% to $393 million (both numbers in the middle of the range). fork). Even after this reduction, these targets still represent year-over-year expansion rates of around 60% for revenue and GMV.

The story moves forward

So, despite major headwinds, the company still expects strong growth, which speaks to its competitive advantages: high switching costs and a sticky product. Once customers start using Global-e services, they tend to stick with it. Without Global-e, companies would have to develop cross-border solutions internally. It would be difficult and expensive.

This dynamic becomes clear when looking at the company’s low churn and high retention. Churn has generally remained below 2% since 2018, and the company has seen net retention rates exceed 140% for much of the same time. This means customers rarely leave and they spend more each year.

While additional expenses might decrease during a recession if a recession were to occur, customers would likely continue to use Global-e to offer international sales. E-commerce companies will want to stay plugged into a massive $736 billion market, according to Forrester. Although a recession may block adoption in the short term, the long-term potential of cross-border trade is still great and Global-e is in an excellent position to take advantage of it.

A risk for the business is that e-commerce platforms like Amazon also have cross-border services to support customers selling through their platform. Therefore, if you are selling through Amazon, you do not need Global-e. However, the latter’s customer base is slightly larger than that of typical merchants selling on Amazon. Global-e serves billion-dollar independent companies like Adidas and Figswhile Amazon sellers may vary in size.

Another risk is the company’s free cash flow burn, which topped $11.6 million in the first quarter. If an economic downturn lasts longer than expected in the company’s core markets, the weakness would put additional pressure on its cash flow.

Why I’m buying Global-e soon

Macro fears dragged the stock down, providing long-term investors with a great buying opportunity. Shares of Global-e are trading at 6.8 times forward sales estimates, well below the valuation at which it was made public. It is also the same valuation as large companies which have much less leeway. Shopifyfor example, trades online with Global-e, despite having a market capitalization almost 16 times larger.

Global-e is not a guaranteed hit, but after this steep price drop, the potential reward for long-term investors seems to far outweigh the risks. It has sustainable competitive advantages that will allow the company to prosper over the long term. I plan to buy Global-e very soon at these prices, and you should consider doing the same.

James T. Quintero