Shopify vs. Sea Limited: Which E-Commerce Stock Is a Better Buy Right Now?

Shopify and Sea Limited are top e-commerce stocks available at significant discounts right now.

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Investors looking to generate market-beating gains over the long term could consider buying e-commerce stocks such as Shopify (TSX:SHOP)(NYSE:SHOP) and Sea Limited (NYSE:SE). The two companies are poised for stellar growth given the global retail e-commerce market is forecasted to touch US$7.4 trillion in 2025, up from US$4.9 trillion in 2021.

The ongoing stock market sell-off allows investors an opportunity to buy a quality growth stock at a lower valuation. Let’s see which e-commerce stock between Shopify and Sea Limited should be part of your shopping list right now.

The bull case for Shopify

Shopify is one of Canada’s largest companies in terms of market cap. But it’s also trading 50% below all-time highs. Despite the pullback, SHOP stock has returned over 3,000% to investors since its IPO in mid-2015.

Shopify enables merchants to establish a digital presence and provides them with capabilities to grow online sales at a robust pace. The company’s expanding suite of products and services allowed it to double its gross merchandise volume to US$400 billion in the last 16 months.

In its most recent quarter, Shopify increased sales by 46% year over year to US$1.12 billion. Its subscription solutions revenue grew by 37% to US$336.2 million due to the expansion of its merchant base. Comparatively, merchants solutions revenue was up 51% at US$787.5 million due to the growth in GMV. Further, Shopify’s monthly recurring revenue stood at US$98.8 million in Q3 of 2021 and was up 33% year over year.

Wall Street forecasts Shopify sales to touch US$7.7 billion in 2022 valuing the stock at a forward price-to-sales multiple of 13, which is quite steep. But analysts also expect SHOP stock to rise by 156% in the next 12 months.

The bull case for Sea Limited

Sea Limited stock went public in Q4 of 2017 and has gained close to 800% in less than five years. Right now, it’s down 60% from all-time highs and valued at a market cap of US$80.9 billion. The company has three business segments that include Garena (game developer), Shopee (an e-commerce marketplace), and SeaMoney (digital payments).

While Sea Limited is still unprofitable, its Garena business generated US$715 million in EBITDA, allowing the business to report a positive free cash flow this year. Garena’s Free Fire mobile game currently has 729 million monthly active users which is up 27% year over year. Its paying users increased by 43% to 93 million in Q3 of 2021 as well.

Sea Limited is a leading e-commerce platform in Southeast Asia and has expanded into other markets including Europe, India, and Latin America.

Sea Limited stock is also valued at a cheaper price-to-sales multiple than Shopify. It reported sales of US$826.7 million in 2018 and US$4.37 billion in 2020. Analysts expect sales to touch US$9.5 billion in 2021 and rise by 47.8% to US$14.1 billion in 2022. So, the stock is valued at a price to 2022 sales multiple of less than six right now.

As mentioned earlier, the company is unprofitable but is forecast to narrow loss per share to US$3.09 in 2021 to US$2.6 per share in 2022. Analysts have a 12-month average price target of US$336 for SE stock, which is 130% above its current trading price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns and recommends Shopify and Sea Limited.

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