Sea Limited (NYSE:SE) isn’t in the S&P 500, yet investors often compare it to one of the index’s big beasts — Amazon.
Specifically, it gets called the ‘Amazon of Southeast Asia’. Unlike Amazon however, Sea’s stock isn’t near an all-time high. Because despite surging 261% in the past two years, it’s still 63% below a peak reached in late 2021.
Let’s take a closer look at the ‘Amazon of Southeast Asia’ to see why I think this growth stock is worth considering buying today.
Riding multiple growth waves
Singapore-headquartered Sea is a technology conglomerate with three digital platforms: e-commerce (Shopee), digital finance (Monee), and digital entertainment (Garena).
Shopee is the largest e-commerce player across Southeast Asia, operating in Indonesia, Malaysia, Thailand, Taiwan, Vietnam, the Philippines, and Singapore. It’s also growing very quickly in Brazil, where it’s taking on MercadoLibre.
Monee enhances Shopee’s e-commerce platform, offering Buy Now, Pay Later loans to consumers and financing to merchants.
Finally, Garena publishes video game titles across Southeast Asia, including Call of Duty: Mobile. It also develops its own titles, notably smash-hit battle royale game Free Fire.
Purring growth engine
The company enjoyed breakneck sales growth before and during the pandemic. However, this slowed dramatically in 2022 when management pivoted to focus on efficiency and profitability.
This change in strategy, along with a rotation out of growth stocks due to rising interest rates, sent the share price crashing.
Fast forward to now though, all three of the company’s divisions are profitable. Not only that, but the growth engine is purring again, as demonstrated in Q3.
| Q3 revenue | Year-on-year growth | |
|---|---|---|
| Shopee | $4.3bn | 35% |
| Monee | $990m | 61% |
| Garena | $653m | 31% |
Group revenue jumped 38% to $6bn, while adjusted EBITDA surged 68% to $874m. Shopee’s gross merchandise volume grew 28%, boosted by its subscription programme, where members are spending five times more than non-subscribers. Ad revenue rocketed over 70%.
Meanwhile, Monee’s loan book expanded 70% while maintaining a stable risk profile. And Garena reported 671m users, its highest number since the pandemic gaming boom in 2021.
Wall Street is bullish
Now, despite this impressive growth, Shopee still faces plenty of competition across Asia. And its margins are wafer-thin today, not helped by the costly logistics of servicing remote Indonesian islands (an issue that should ease as scale improves).
Also, aggressively expanding the loan book adds risk, especially if Southeast Asia runs into financial trouble.
On balance though, I think the potential long-term rewards outweigh the risks, especially with the stock down 33% since September.
The forward price-to-sales ratio is now 3.9 — a significant discount to its historical average — while the forward price-to-earnings multiple is 33. Neither is demanding for a fast-growing technology company.
Going on Yahoo Finance’s data, the five-year PEG ratio here is just 0.48. For context, anything below 1 is seen as potentially undervalued.
Given this, it’s not surprising that most Wall Street analysts are bullish. In fact, 88% rate Sea a Buy, with none recommending selling it.
The average share price target is 46% higher than the current $131, suggesting the stock could crush the S&P 500, assuming these targets are broadly correct (which isn’t guaranteed, of course).
Looking ahead, the long-term opportunity is enormous, with e-commerce and digital finance penetration in Southeast Asia still very low today.
As Sea continues monetising its platforms with digital ads, profits should climb much higher in the years to come.
