For a moment between 2020 and 2022, it seemed as if e-commerce would become the future of how people shop and purchase their daily goods. From companies like Amazon (NASDAQ:AMZN) to Costco Wholesale (NASDAQ:COST), in-person shopping looked like a thing of the past. However, there are still some benefits to shopping in person that e-commerce cannot replace.
Moreover, many of the aforementioned companies’ stocks have seen generous corrections in the period since the pandemic. In some cases, these corrections were more than valid, but in others, they started a trend of uncovering just how low some investors are willing to go.
This brings us to the question of which e-commerce stocks to sell to minimize long-term portfolio damages. These are three potentially overvalued stocks that could warrant a sell-off for a better position at a later date.
Shopify (SHOP)
Down 20% in the last six months Shopify (NYSE:SHOP) has struggled to remain profitable over the last fiscal quarter. Its losses for the first quarter of 2024 hit $273 million, bringing into question its trajectory as an online e-commerce services provider.
For Shopify to remain relevant in the market with its current business model, it must continuously capture new customers for its service platform, which has been hit-or-miss for its valuation since the pandemic-era online shopping boom.
These days, the company has focused heavily on its new Shopify Payments platform as a key contributor to its growth. The service, which aims to simplify online payment receipts for Shopify store owners, has improved in penetration but still does not derive additional revenue, due to being a free service.
Moreover, its gross margin decreased by a substantial 50% year-over-year, with operational expenses eating around 45% of revenue. Perhaps these numbers indicate a coming expansion for Shopify, or underscore a difficult business model for operating efficiency. Either way, some analysts agree the stock is overvalued and should be listed among e-commerce stocks to sell.
PayPal (PYPL)
A tumultuous history and spin-off divestiture have brought PayPal (NASDAQ:PYPL) to where it is today. While PayPal is not going anywhere and remains deeply embedded as a payment system, it relies heavily on transactions to stay relevant and could be at risk for the short term.
This makes it one of the better e-commerce stocks to sell for a better re-entry position.
Year after year, the company has successfully grown revenue, and though it has gently come down from the pandemic-induced high of the last four years, it may have more room to dip before a rebound. I estimate this is the case because, in part, PayPal relies on non-essential online transactions like shopping and cash exchange. Should the economy take a turn for the worse, people are likely to cut non-essential spending, which could eat away at PayPal’s revenue stream.
Etsy (ETSY)
On paper, the concept of an online marketplace dedicated to artisans and custom products seems like a great idea. However, in the case of Etsy (NASDAQ:ETSY), an excessive obsession with growth has pushed the concept to its limits, causing it to stray from its original mission of human commerce.
Much like other e-commerce platforms, Etsy boomed during the pandemic, as consumers sought comfort through online retail therapy. Luckily, Etsy’s well-positioned model took advantage of this trend, as its perception as a human-driven, handmade marketplace lured in isolated people looking for something more meaningful to buy.
However, it seems Etsy could be too big for its shoes as it struggles to balance the needs of its expanding merchant count with the expectations of online consumers. That’s because Etsy always benefitted from its niche as a small platform for small quantity sales, but its duty to shareholders is pushing it away from that benefit.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.