We recently compiled a list of the 10 Best E-Commerce Stocks To Invest In. In this article, we are going to take a look at where Sea Limited (NYSE:SE) stands against the other e-commerce stocks.

An Overview of the E-Commerce Industry

According to a report by Forbes, the e-commerce industry is expected to grow to a valuation of $7.9 trillion by 2027 from $6.3 trillion in 2024. In 2027, 23% of retail purchases are expected to be made online, up from 20.1% in 2024.

An increase in consumer confidence, after a period of sluggish growth, has been a key catalyst in improving the position of the e-commerce industry. On July 30, Reuters reported that the consumer confidence index, in the US, increased to 100.3 in July after it was revised down to 97.8 in June. Previously, experts predicted the index to fall to 99.7 after reaching 100.4 basis points. Chief Economist, Dana Peterson, suggested that while consumers remain resilient they are concerned over rising prices and interest rates. However, despite an uncertain macroeconomic environment, e-commerce companies are taking advantage of the current consumer sentiment by reducing prices. Companies like Target have also revised their profits for FY 2024 as lowered prices have drawn more customers.

To shed light on the state of online retail, US Mastercard Economics Institute Chief Economist, Michelle Meyer appeared in an interview on Yahoo Finance on August 16. Online retail sales went up by 8.2% in July, compared to a 2.9% growth rate in July 2023. She further explains that personal finances, time efficacy, and the overall state of the labor market impact which sites consumers choose to shop from. Meyer also added that in the past quarter, the average individual in the United States saw an appreciation in wealth, which has a positive bearing on consumer spending and therefore online retail.

What Does the Competitive E-Commerce Landscape look like?

The future of e-commerce is unpredictable. Bans on products from China, questions about cheap labor, criticism over fast fashion, and the increasing use of technology are different forces shaping the industry. In the first quarter of 2024, the US pushed to ban TikTok in the country, which mongered fear among Chinese e-commerce sites such as Shein and Temu. In April, law-making agencies in the US suggested a ban on Temu over labor rights infringement. Moreover, on August 21, Shein sued Temu over copyright infringements. The former suggested that Temu stole the company’s designs and trade secrets resulting in Temu losing money over every sale. Despite such, the founder of Temu, Colin Huang, stands as the wealthiest person in China with a net worth of $51.4 billion, as of August 22. You can also take a look at the best Chinese stocks to buy now.

On the other hand, e-commerce sites in the United States are trying to win against their competitors using advanced technology. Walmart, for instance, launched a generative AI search tool that customers can prompt and get a list of ideal products or items needed. For example, a customer who wants to throw a birthday party, but is unaware of the items needed, could use the search tool to save time. Similarly, Amazon launched Rufus, an AI shopping assistant, earlier this year. Rufus is capable of personally assisting a shopper and helping them find the right products. While we discuss technology, we cannot ignore eBay’s magical listing tool for sellers backed by artificial intelligence. The tool can analyze images, categories, and titles to curate product descriptions, prices, and shipping costs. You should also read our piece on the latest AI news and analyst ratings you should not miss.

As the e-commerce industry grows, it is crucial to know which companies are pioneering the race. You can also read our piece on the best advertising stocks to buy according to short sellers.

Our Methodology 

To compile the list of the 10 best e-commerce stocks to invest in, we looked at holdings of e-commerce ETFs and screened for Internet Retail companies on the Finviz stock screener. We sorted our screen by market cap and looked at the 20 largest e-commerce companies. We picked stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.

Note: All pricing data is as of August 22.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Sea Limited (NYSE:SE)

Number of Hedge Fund Holders: 63

Sea Limited (NYSE:SE) is one of the best e-commerce stocks to invest in. The technology company is based in Singapore and specializes in three segments including e-commerce, digital financial services, and digital entertainment. The company first launched its e-commerce platform, Shopee, in Southeast Asia and Taiwan in 2015. Shopee is now functional in 8 countries including Singapore, Malaysia, Thailand, Indonesia, Taiwan, and Korea.

Consumers can use Shopee to secure fashion, makeup, and home products among other daily items. It is one of the fastest-growing e-commerce platforms in the region and makes up two-thirds of the company’s revenue. In Q2 2024, Sea Limited’s (NYSE:SE) e-commerce revenue grew by 34% to reach $2.8 billion, exceeding initial expectations of $2.68 billion. By the end of this year, the company expects sales from Shopee to expand by more than 20%, revised upwards from a late teens estimate made earlier this year.

Sea Limited (NYSE:SE) is improving its services to excel in a competitive e-commerce landscape. SPX, also referred to as Shopee Xpress, is an integrated logistics service by Shopee that delivered over 70% of orders placed in Asia within 3 days in Q2 2024. During the same quarter, the company also launched a “no questions asked return” program. This policy pushed buyers to manage order returns as efficiently as possible, oftentimes within 24 hours. Better return policies also increase the average order basket size by over 10% from Malaysian buyers.

Overall, during the second quarter of 2024, gross orders on Shopee increased by 40%, and gross merchandise value went up by 29%, year over year. Sea Limited (NYSE:SE) has a positive outlook on its position in the industry, suggesting it is stable and expects profits to grow consistently over the next few quarters.

Analysts are bullish on SE and their 12-month median price target of $90 points to a 10% upside from current levels. Overall, SE was held by 63 hedge funds at the close of Q2 2024 with total stakes amounting to $3.54 billion. As of June 30, Tiger Global Management LLC was the largest shareholder with a position worth $1.15 billion.

SE is currently trading at 42 times this year’s earnings estimate, higher than the sector’s forward P/E of 13. While there’s a premium here, the company’s growth trajectory cannot be ignored. Analysts expect earnings to grow 224% this year to $0.81 per share, and by 672% to $1.93 per share in 2025, from 2023.

Lakehouse Capital’s Lakehouse Global Growth Fund stated the following regarding Sea Limited (NYSE:SE) in its April 2024 investor letter:

“At the portfolio level, the biggest contributor to performance during the month was Sea Limited (NYSE:SE) (+18.2%), which performed well as both Shopee and its primary competitor, TikTok Shop, raised take-rates meaningfully across several countries during the quarter. This is a noteworthy development as we are now starting to see mounting evidence of more rational competitive behaviour from the dominant players in Southeast Asia’s e-commerce market, which in turn,signals a more favourable industry structure lay ahead.”

Overall SE ranks 6th on our list of the best e-commerce stocks to buy. While we acknowledge the potential of SE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.