E-commerce retailers and companies that rely heavily on online sales are retreating in stock prices as the economy recovers, but analysts and investors think they’ll soon rebound.
At the start of the pandemic, Chewy (CHWY), American Eagle (AEO), Etsy (ETSY) and others thrived with consumers’ dependence and saw their stocks at all time highs. In the year following the shut down of the economy in March 2020, Chewy soared 271%, to $118.69, a little over three times it’s IPO price. Etsy went up to $233.86, an increase of 285%, about eight times more than it’s IPO price. American Eagle stock went up 181.69%, to $24.62, 28 times higher than it’s IPO price in 1994.
But beginning in early 2021, the stocks have fallen in response to fewer consumers clicking through online stores and more of them leaving the house. From February 2021 to September 2021, Chewy went down by 36%, to $74.99. Etsy stock slipped to $217.02, a 7% decline. American Eagle stock continued to climb from February to April, but their stock has declined by 28%; to $26.89 in September. These stocks have continued to fall despite the continued record highs of the S&P 500.
That sharp rise of e-commerce stocks during the height of the pandremic represented a necessary cushion for consumers. Without the ability to safely enter brick and mortar stores to purchase many goods, investors recognized the dependence people would have on e-commerce companies, and started buying stocks that reflected that need. With brick and mortar stores still open, despite the continuing pandemic, the decline in e-commerce stock began.
Many investors in these companies remain fans for the long-term and believe this is only a short term trend.
“I don’t think that there will be a long term trend of online shopping going away,” Teresa Arthur, an options trader from Juno Alaska said. “I think we’re too much of an instant gratification society and it’s easy to shop online.”
Jamie Kozak, CFA is a former portfolio manager and a current investor in American Eagle from Vancouver Canada. He mirrors what Arthur said about this most likely being a short-term trend.
“I would say it’s difficult to generalize,” Kozak said. “There are some internet only companies or there are some that were deemed to have benefited from stay at home, although I wouldn’t say they’re all in that boat.”
Kozak expects outside business factors to play a role in how individual companies’ stock progresses in the future, including profit growth and increased company value.
One stock with a strong recommendation by some analysts is Chewy. Chewy is an online retailer for pet food and other pet related products.
“With impressive growth and a business model that is levered to industry tailwinds, we believe Chewy could continue achieving strong sales growth,” said a recent report written by Stephanie Wissink, Equity Analyst at Jefferies LLC, along with Corey Grady, CFA and Blake Anderson, CFA.
Outside factors are also playing a role in e-commerce stocks seeing recent declines. This includes issues with supply chain shortages – which are affecting the entire retail industry as a whole.
“If we can’t get products in the stores, we won’t be able to get products anywhere,” Arthur said.
The global supply chain shortage has been an ongoing issue for retailers for months. The pandemic has caused a slowdown in the amount of workers in several sectors, the vessel lodged in the Suez Canal slowed down trading, winter storms that shut down petrochemical plants in the Gulf of Mexico have left key products in short supply, and more.
“The supply chain issue is a really big one,” Arthur said. “Reports are saying do your Christmas shopping now.”