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Investing, Stocks  | April 29, 2019

If you're interested in growth, few trends look as attractive as e-commerce these days. Whether it involves companies that specialize in selling products exclusively online, or platform owners who support these services, digital retailing is set to deliver strong returns across many investment niches for decades to come.

With that bright long-term outlook in mind, we asked Motley Fool contributors to highlight a few e-commerce giants that look appealing as investments right now. Here's why eBay(NASDAQ:EBAY)Baozun (NASDAQ:BZUN), and MercadoLibre (NASDAQ:MELI) topped that list.

Make A Bid On This Rebound

Demitri Kalogeropoulos (eBay): Its sales growth doesn't approach the levels of fully integrated peers like Amazon and Walmart. But that's no reason for investors to ignore eBay as a quality investment candidate.

The marketplace giant recently announced surprisingly strong sales growth that convinced management to boost their outlook for the full 2019 year. Sure, the 2.5% projected boost is nothing like the 42% spike Walmart just reported or the 12% increase Amazon announced in the fiscal first quarter. Yet eBay's matchmaking operating approach delivers far higher profits, with operating margin of around 30% of sales compared to less than 10% for Amazon and Walmart.

eBay's profitability is rising, too, as the company cuts costs and steadily increases the transaction fees that it charges its sellers. Those fees can only expand as eBay improves the seller experience, though, and so it's worth investors' time to follow metrics like buyer pool growth and merchandise volumes.

Even after the recent outlook upgrade, the e-commerce giant is on track to post its second straight year of decelerating sales growth, so shareholder expectations aren't particularly high. eBay's business, however, isn't in retreat and that gives CEO Devin Wenig and his team plenty of flexibility as they seek to boost returns over the next few years.

Things Are Heating Up South Of The Border

Jamal Carnette, CFA (MercadoLibre): Despite MercadoLibre's stock exploding approximately 70% year to date, but the company remains a true undervalued gem. This might seem aggressive as the company trades at eight times sales and growth appears priced into the valuation. However, what isn't priced into MercadoLibre is the company's nascent payment solution MercadoPago.

Last year was the first nonmarketplace revenue eclipsed marketplace revenue, and MercadoPago was the reason why. In the fourth-quarter off-platform payments processed more than $2 billion in transactions. This changes MercadoPago's use case from site-specific pay processor to a truly global payments/transactions solution akin to PayPal. It's no mistake the latter invested $750 million in MercadoLibre earlier this year.

Ignore the clickbait headlines declaring socialism, caravans, and trade disputes in Latin America; the conditions on the ground continue to show a shift from emerging to developed market, which benefits both e-commerce and payment solutions. As a result, MercadoLibre is well situated to provide strong returns for years.

The "Shopify of China"

Leo Sun (Baozun): Baozun is often called the "Shopify of China." Like its American counterpart, Baozun helps businesses quickly establish an e-commerce presence with digital storefronts, marketing services, payment and logistics services, and other features.

The bears often claimed that Baozun would be rendered obsolete if e-commerce giants like Alibaba and launched similar services for merchants. Yet Alibaba is actually one of Baozun's biggest investors, and integrates its services into its Taobao and Tmall marketplaces.

Baozun doesn't face any meaningful competitors in its niche market, which enables it to profit from the growth of China's e-commerce market without actually running a capital-intensive marketplace. That's why Baozun's revenue surged 30% to $784 million last year.

Unlike Shopify, which isn't profitable on a GAAP basis, Baozun is consistently profitable by both GAAP and non-GAAP metrics. Its GAAP net income rose 29% to $39 million last year, and its non-GAAP net income rose 30% to $50 million.

Wall Street expects Baozun's revenue and non-GAAP earnings to rise 35% and 72%, respectively, this year. Those are phenomenal growth rates for a stock which trades at just 20 times forward earnings. Shopify, by comparison, trades at about 250 times forward earnings.

Baozun still trades at a discount to its earnings growth because it's weighed down by concerns about trade tensions and the slowdown in the Chinese economy. But once those cyclical headwinds fade, investors could flock back and boost Baozun's stock to fresh highs.

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