Online shopping gained immense importance, especially during the pandemic when people were confined to their homes. With the passage of time, the increased adoption of modernized technology and the plethora of choices and ease it offers to valued consumers have played a crucial role in keeping the e-commerce industry well-positioned.
Given this backdrop, investing in fundamentally strong online retail stocks Ulta Beauty, Inc. (ULTA), eBay Inc. (EBAY), and Yatsen Holding Limited (YSG) could be wise for the reasons explained in the article.
Ballooning fears of an economic slump, induced by regional banking failures, rapidly increasing interest rates, sky-high commodity prices, and a volatile financial market, are expected to linger for a while. Despite such challenges, consumer spending, considered a primary driver of growth and accounts for around two-thirds of the economic output, has remained resilient.
Over the past decade, the e-commerce industry advanced like an avalanche, gaining considerable momentum. For all types of purchases, consumers have gravitated to online shopping. New businesses are shifting to establish a web presence to capture online sales. 24% of retail purchases are expected to take place online by 2026.
In addition, leveraging modern-age, cutting-edge technologies improve the overall functioning of the e-commerce industry. For instance, AI makes it easier for brands to customize products on demand or enhance the level of individual shopping experiences.
Also, the adoption and implementation of connected technologies, such as Bluetooth Low Energy (BLE) and Near-Field Communication (NFC), for enhanced shopping and payment experience is anticipated to be the reason for the growth of IoT in retail.
According to a new report by Grand View Research, the global IoT retail market is expected to reach $297.44 billion by 2030, growing at a CAGR of 28.4% from 2023 to 2030.
Moreover, as per Statista, revenue in the e-commerce market is projected to reach $6.35 trillion in 2027, expected to grow at a CAGR of 11.5% between 2023 and 2027.
Amid this backdrop, quality e-commerce stocks ULTA, EBAY, and YSG could be wise portfolio additions now.
Ulta Beauty, Inc. (ULTA)
ULTA operates as a retailer of beauty products. The company’s offerings include cosmetics, fragrances, skincare and haircare products, bath and body products, salon styling tools, professional hair products, salon services, and nail services.
ULTA’s trailing-12-month gross profit margin of 43.29% is 23.7% higher than the industry average of 35.23%. Also, its trailing-12-month ROCE, ROTC, and ROTA of 71.09%, 28.27%, and 23.13% are 502.9%, 343.5%, and 485% higher than the industry averages of 11.79%, 6.37%, and 3.95%, respectively.
During the fiscal fourth quarter that ended January 28, 2023, ULTA’s net sales increased 18.2% year-over-year to $3.23 billion. The company’s gross profit increased 18% year-over-year to $1.21 billion. Net income grew 17.8% year-over-year to $340.75 million, while its earnings per common share increased 23.5% year-over-year to $6.68.
For the fiscal year 2023, the company expects its net sales to come in between $10.95 billion and $11.05 billion and earnings per share between $24.70 and $25.40.
ULTA’s EPS is expected to increase 4.8% year-over-year to $5.97 for the fiscal second quarter ending July 2023. The company’s revenue for the same quarter is expected to increase 8.9% year-over-year to $2.50 billion. Additionally, it topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 30.5% over the past six months to close the last trading session at $530.94. It has gained 1.9% over the past three months.
It’s no surprise that ULTA has an overall rating of B, equating to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ULTA has an A grade for Quality and B for Sentiment. ULTA is ranked #13 out of 44 stocks in the Specialty Retailers industry.
Click here to access ULTA’s Growth, Value, Momentum, and Stability ratings.
eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers in the United States and internationally. The company's marketplace platform includes its online marketplace at ebay.com and the eBay suite of mobile apps. Its platforms enable users to list, buy, and sell various products.
Its trailing-12-month gross profit margin of 72.60% is 106.1% higher than the 35.23% industry average. Also, its trailing-12-month levered FCF margin and ROTC of 18.44% and 9.87% are 593.2% and 54.9% higher than the industry averages of 2.66% and 6.37%, respectively.
EBAY declared a dividend of $0.25 per share of the company's common stock. The dividend is payable to stockholders on June 16, 2023. Its annual dividend of $1 translates to a 2.19% yield on the current share price. Its four-year dividend yield is 1.34%. The company’s dividend payout has grown at a CAGR of 16.2% over the past three years.
During the fiscal first quarter that ended March 31, 2023, EBAY’s net revenues increased 1.1% year-over-year to $2.51 billion. The company’s gross profit increased marginally year-over-year to $1.81 billion. Non-GAAP net income from continuing operations stood at $600 million, while its non-GAAP earnings per common share increased 5.7% year-over-year to $1.11.
For the fiscal quarter ending June 30, 2023, the company expects its net revenues to come in between $2.47 billion and $2.54 billion and non-GAAP EPS from continuing operations between $0.96 and $1.01.
EBAY’s EPS is expected to increase 1.2% year-over-year to $1.01 for the fiscal third quarter ending September 2023. The company’s revenue for the same quarter is expected to increase 3.3% year-over-year to $2.46 billion. Additionally, it topped consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 18.6% over the past six months to close the last trading session at $45.12. Over the past five days, it has gained 4.1%.
EBAY’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
EBAY has an A grade for Quality and B for Growth. EBAY is ranked #11 out of 58 stocks in the Internet industry.
To see the additional ratings of EBAY for Value, Momentum, Stability, and Sentiment ratings, click here.
Yatsen Holding Limited (YSG)
Headquartered in Guangzhou, China, YSG develops and sells beauty products under the Perfect Diary, Little Ondine, Pink Bear, Abby’s Choice, GalÃnic, DR.WU, Eve Lom, and EANTiM brands.
Its trailing-12-month gross profit margin of 67.96% is 115.5% higher than the 31.54% industry average. Its trailing-12-month levered FCF margin of 10.27% is 281.9% higher than the industry average of 2.69%.
YSG’s total net revenues from skincare brands increased 42.4% year-over-year to RMB471.60 million ($68.4 million) in the fiscal fourth quarter that ended December 31, 2022. Its non-GAAP net income came in at RMB34.68 million ($5.03 million), compared to a non-GAAP net loss of RMB335.12 million in the prior-year quarter.
Also, its non-GAAP net income attributable to ordinary shareholders per class A and class B ordinary share came in at RMB0.02, compared to a net loss per share of RMB0.13 in the prior-year quarter.
Analysts expect YSG’s revenue for the fiscal year ending December 2023 to be $574.58 million, up 7.7% year-over-year. Additionally, it topped consensus EPS estimates in each of the trailing four quarters and revenue in three of the four trailing quarters.
The stock has gained 48.5% over the past year to close the last trading session at $0.93. Over the past five days, it has gained 9.5%.
YSG’s POWR Ratings reflect its strong fundamentals. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
YSG also has an A grade for Growth and a B in Value. It is ranked #10 within the Specialty Retailers industry.
To access additional ratings for YSG’s Momentum, Stability, Sentiment, and Quality, click here.
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ULTA shares were trading at $526.53 per share on Wednesday morning, down $4.41 (-0.83%). Year-to-date, ULTA has gained 12.25%, versus a 8.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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