ASX ecommerce stocks have endured a tough 2021, here’s why reporting season will be critical
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ASX ecommerce stocks have declined from highs witnessed last year amidst a boom caused by COVID-19.
The closure of many physical shops forced consumers online and the shutting down of offices travel led to money being redirected to certain retailers. The most notable beneficiaries were companies specialising in electronics enabling work from home set ups as well as home improvement.
Many stocks saw a substantial surge in their share price such as furniture retailer Temple & Webster (ASX:TPW) which grew from $2 in March 2020 to over $13 in January 2021 and Redbubble (ASX:RBL) which went from 50 cents to over $7 in a similar period of time.
Many of these stocks have now retreated since the COVID-19 vaccine rollout began even with solid quarterly results.
Is the boom continuing and the market ignoring it, is it truly fading with the hope normality is coming or is it a temporary dip that may correct itself this upcoming reporting season?
Morgans research analyst Josephine Little thinks this upcoming reporting season could be critical as to whether the trend continues.
Investors are cautioned to look at company growth rates when these stocks reveal their books.
“We have definitely seen a shift in sentiment towards the e-commerce retailers of late, which are widely considered to be the largest beneficiaries of COVID with highly captive audience and lower customer acquisition costs),” she told Stockhead.
“The market is concerned that already small margins and the requirement for heavy marketing (at increased rates vs during COVID) could see earnings evaporate as quickly as they emerged.
“Balancing investment for the long-term and sales growth rates will be key.”
Little warned that smaller plays such as MyDeal (ASX:MYD) were particularly vulnerable to investors turning off from the sector even if they were attractive opportunities.
“Investors can tend to gravitate to the bigger, more liquid stocks with a longer track record,” she said.
“While completely understandable, it often means strong stories get completely missed.
“MyDeal’s growth rates have previously been well in excess of its peers, which is typical for this type of company in the earlier stages of its life cycle.”
While not predicting any company’s results, Little said investors should watch closely but still be cautious.
“The upcoming quarterly/FY results season will provide the market with plenty of data to be able to compare and contrast the e-commerce space – results will do the talking and allow the market to gain more confidence in the sales/earnings it is willing to capitalise,” she said.
“We see a reasonable risk that revenue growth rates turn negative, freight costs remain elevated and more marketing (at higher cost) is required.’
“This could see earnings profiles deteriorate reasonably quickly.’
“We therefore caution against this space in the near term at least.”
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