Whether it be online shopping or social media, secular forces are propelling consumer internet businesses forward. Despite the tailwinds, their demand largely hinges on consumer spending habits, which investors believe are weakening. As a result, the industry has pulled back by 8.5% over the past six months. This drawdown is a stark contrast from the S&P 500’s 10% gain.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here are two resilient internet stocks at the top of our wish list and one that may face trouble.
One Consumer Internet Stock to Sell:
Revolve (RVLV)
Market Cap: $1.97 billion
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Do We Pass on RVLV?
- White space opportunities may be dwindling as its growth in active customers averaged a weak 5.7%
- Demand has been weak recently as it posted disappointing growth in its average revenue per buyer and struggled to expand its platform
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Revolve’s stock price of $27.65 implies a valuation ratio of 19.4x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than RVLV.
Two Consumer Internet Stocks to Watch:
Pinterest (PINS)
Market Cap: $14.95 billion
Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.
Why Do We Love PINS?
- Monthly Active Users have grown by 11.2% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 28.3%, and its rise over the last few years was fueled by some leverage on its fixed costs
- Robust free cash flow margin of 27.4% gives it many options for capital deployment, and its growing cash flow gives it even more resources to deploy
At $22.13 per share, Pinterest trades at 9.3x forward EV/EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Booking (BKNG)
Market Cap: $161.2 billion
Formerly known as The Priceline Group, Booking Holdings (NASDAQ: BKNG) is the world’s largest online travel agency.
Why Could BKNG Be a Winner?
- 17.6% annual revenue growth over the last three years surpassed the sector average as its platform resonated with consumers
- Performance over the past three years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Strong free cash flow margin of 34.3% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
Booking is trading at $4,991 per share, or 15.5x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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