Demandware Inc (DWRE): This E-Commerce Stock Is Overvalued

However, the fact that NetSuite could be even more overvalued that Demandware does not make the life of the latter easier. NetSuite offers a range of products, and thus can cross-sell to its customer base. SAP has even more possibilities on this side. However, the market does not believe in growth prospects of SAP. The stock has been declining in a see-saw manner this year, and is currently down 5%.

The optimism about Hana database was overshadowed by continued weakness in Europe and declining IT spending all over the world. SAP trades at a reasonable 14.7 P/E, but analysts’ mean target price stands at $60.26, a 24% downside. That looks like overkill to me, as SAP has an established position in the software market and is unlikely to become that cheap.

Bottom line

I would treat Demandware Inc (NYSE:DWRE) with caution. The company looks overvalued to me. At the same time, given the flurry of acquisition deals, I would not recommend to short it because someone could step up with a bid regardless of the valuation. NetSuite looks overvalued too. If the company does not get sold fast, investors would ultimately look at the numbers. SAP would most likely struggle to extract meaningful growth and continue to trade in its mind-boggling see-saw manner.

The article This E-Commerce Stock Is Overvalued originally appeared on Fool.com and is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Netsuite. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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