MoneyTalks: Why Red Leaf Securities likes these ASX ecommerce stocks

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Red Leaf Securities director Jonathon Howe.

What’s hot right now?

Howe likes the ecommerce sector, which he said has seen falls since the early days of the Covid pandemic era.

“The sector has had dramatic fall post the highs of the frothy pandemic valuations built around the huge consumer behaviour shift of at-home purchases, many of which you could easily buy from a store such as clothes, makeup and electronics,” he said.

“But despite the fall from grace in many of these share prices, many if not all in upwards of 80-90% sell-offs from peaks, we believe the trend is still very alive and well with continued growth expected in the space.”

Howe said the ease and convenience of buying online for shoppers makes it attractive for long-term growth.

“It’s much easier than picking up your kids and heading over to the baby store, Myer or the local pet store to get your their next collection of winter clothes or your pets medication or accessories,” he said.

“Being time poor myself with three young kids and working full-time parents, we much prefer (outside of groceries) making discretionary purchases online.”

Top picks

Kogan (ASX:KGN)

He said possibly your leader in the space KGN sells plenty of third party SKUs, however the higher margins come from its in-house products.

He said the stock has already started to trend higher this calendar year, up from $3 to $4.50, which is bullish for the sector generally.

The heavily shorted KGN is also a pick of Morningstar, which believes the company’s share price is still highly undervalued and should be closer to $10.70.

Morningstar said that KGN has successfully sold its excess inventories and may be better positioned than some to stave off competition from larger competitors like Amazon, thanks to its recent expansion to deliver bulky goods to Brisbane, Perth, and Adelaide.

Adore Beauty (ASX:ABY)

Howe said ABY is the leader in online makeup sales in Australia.

“I know this as my wife is a repeat customer,” he said.

“ABY’s aim is to expand its product/SKU offering and also leverage its customer base into its own in-house offering, which are much larger margins for the company.”

The stock reached a peak of ~$7.50 when it IPO’d in 2020, and currently sits at ~98 cents/share.

“ABY is sitting on roughly $30M in cash, no debt, EV circa $60M, and is due to turn a profit of $2m+ in FY23,” Howe said.

Mad Paws (ASX:MPA)

Howe said MPA’s wholly owned online pet care supplier Pet Chemist, is Australia’s leading online pet pharmacy.

He said they have a comprehensive range of pharmaceutical and nutraceutical products, with more than 1,500 SKUs and growing along with expert guidance for pet owners.

“Since acquiring PC in Feb 2022, the pet supplies company has nearly doubled sales from ~$12m to circa/on track to be ~$18-19M+ FY23,” Howe said.

“Add that to Mad Paws company as a whole with its other businesses of pet sitting and toys and treats subscription and it’s on track for $40m revenue FY23.”

The KGN, ABY & MPW share price today:

Red Leaf Securities and its associates may intend to either transact in the companies mentioned or potentially work with them at any time in the future.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.