Here’s an e-commerce stock I prefer to Amazon shares

Amazon shares have dipped recently, and many believe that this is an ideal time to buy. But Stuart Blair thinks this high-growth e-commerce stock is better.

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Amazon (NASDAQ: AMZN) stock has dipped in recent months, falling from highs of $3,700 in November to its current price of $3,160. This decline has led to many seeing Amazon shares as a top stock to buy, but I prefer another e-commerce stock.

Why am I not buying Amazon shares?

Amazon dominates the e-commerce market and has seen tremendous growth over the past few years. In fact, in 2018, the company recorded net sales of $233bn, and these increased to $386bn in 2020. In 2021, net sales should easily exceed $400bn. Profits have also increased in line with sales, with the company seeing year-on-year profit growth of 84% in 2020.

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But despite such excellent growth, there are signs that the pandemic boom is easing, and growth is starting to slow. Indeed, for Q4 2021, Amazon expects sales between $130bn and $140bn, which is ‘only’ year-on-year growth of between 4% and 12%. Further, the company is experiencing several headwinds due to labour shortages, wage inflation and global supply chain constraints. This is likely to lead to around $4bn in costs and will see fourth quarter operating profits drop significantly from the $6.9bn it recorded last year. Such slowing growth makes the company’s price-to-earnings ratio of around 60 hard to justify. It remains a hugely successful company, of course. But all this is why I’m avoiding Amazon shares, in favour of other e-commerce stocks.

The e-commerce stock I’d buy instead

Sea Limited (NYSE: SE) did extremely well during the pandemic. At its IPO it was $15 a share (in 2017), yet it reached more than $350 a share in 2021. But things have been worse recently, and the shares are currently priced at around $170. This is partly due to rising inflation, which is a major negative for growth stocks, and will likely make it more expensive to borrow money. Further, this month, the company’s largest shareholder, Tencent, also reduced its stake in the company. This saw the shares dropping around 10% on the back of this news. So, why would I still buy?

Firstly, the company offers far more than just an e-commerce stock. Indeed, it also provides mobile gaming and digital payment services. This includes the mobile app Free Fire, which was the most-downloaded mobile game globally in 2019 and 2020. Free Fire brings in a significant amount of profits and cash flow to the company.

These profits have been reinvested in the e-commerce business, Shopee, and the payments, subsidiary, Sea Money. I’m particularly impressed by Shopee, considering its recent expansion. In fact, it now operates all around the world, including in Asia, Latin America, and some parts of Europe. Many of these countries, especially in Asia and Latin America, are expected to see very large growth in the e-commerce sector.

Such diversification has also meant that revenues for 2021 are likely to reach around $9bn, over a 100% increase year-on-year. As such, it’s clear that Sea Ltd is growing at a far quicker pace than Amazon, even though it remains unprofitable. After its recent dip, Sea Ltd also trades at a price-to-sales ratio of just over 10, which seems reasonable for such a fast-growing company. Therefore, I’m extremely tempted to buy some shares.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Sea Limited. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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