Now that life is returning to normal more consumers are choosing to shop at traditional brick-and-mortar retail stores. In other words, this might be an opportunity to temporarily shift money out of e-commerce stocks, possibly moving some of the funds to conventional brick-and-mortar retailers.
The potential return to traditional retail might be short-lived, yet it will certainly provide investors with even more reason to take profits off the table with their e-commerce holdings. The plain truth of the matter is several e-commerce stocks are overvalued.
Here is a quick look at three overvalued e-commerce stocks investors should steer clear of in the quarters ahead: Pinduoduo (PDD), Jumia Technologies (JMIA), and Etsy (ETSY).
Pinduoduo (PDD)
PDD, headquartered in Shanghai, China, provides an e-commerce platform that makes it easy for users to engage in group purchase arrangements, mainly through the Wechat app made by Tencent (TCEHY).
PDD has an overall grade of C, which translates into a Neutral rating in our POWR Ratings system. Though the stock has a grade of B in the Quality component, it has Cs in the Momentum and Sentiment components and a D in the Value component. Click here to learn how PDD fares in the rest of the components, including Growth and Stability.
Out of the 76 publicly traded companies in the D-rated China industry, PDD is ranked toward the bottom, slotting in at 52nd. You can find top stocks in this industry by clicking here.
Click here to check out our E-commerce Industry Report for 2021
Jumia Technologies (JMIA)
JMIA, based in Berlin, Germany, is an e-commerce specialist that sells a litany of products, most of which are textiles, accessories, beauty products, or health products. JMIA also sells a wide array of products geared toward kids.
JMIA is a POWR Ratings failure with an overall grade of F, which is a Strong Sell rating. The company has a grade of F for the Value component and Ds in the Quality, Stability, and Sentiment components. Investors who are curious as to how the stock grades out in the Momentum and Growth components can find out by clicking here.
JMIA is ranked nearly dead last out of 70 stocks in the Internet industry, slotting in at 67th. You can find top companies in this industry by clicking here. Analysts view the stock as overpriced as their average price target is $14.14. If JMIA reaches this point, it will have declined in value by more than 52%. Making matters worse is JMIA's sky-high 3.68 beta.
Etsy (ETSY)
Though ETSY's online shopping platform is a bit clunky and far from intuitive, it is a money-maker. Based in Brooklyn, ETSY is an e-commerce star that has been publicly traded for half a dozen years. The company's primary operations are in the United States, Canada, the United Kingdom, France, Australia, and Germany.
ETSY has a forward P/E ratio of 57.53. This means the stock is overvalued at its current trading price of around $166. The stock is still about $90 below its 52-week high of $251.86, yet its forward P/E ratio is quite high. If ETSY were to return to its 52-week high, its forward P/E ratio would be in the neighborhood of triple digits, a fact that makes the stock's current trading price all the more absurd.
ETSY is currently ranked just outside of the top half of the 70 stocks in the Internet industry. The company is a mixed bag in the context of the POWR Ratings. ETSY's executives certainly deserve credit for earning a Quality Grade of A. However, the stock also has Ds in the Value and Stability components. If you are curious as to how ETSY grades out in the Momentum, Sentiment, and Growth components, you can find out by clicking here.
PDD shares were trading at $122.48 per share on Wednesday morning, up $0.57 (+0.47%). Year-to-date, PDD has declined -31.06%, versus a 13.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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