PDD, AMZN, MELI: Which e-commerce stocks are the best to buy?

In recent years, the e-commerce scene has been struggling with macro difficulties and rapidly changing consumer behavior. To be sure, high interest rates and fears of something worse than an economic soft landing have caused some consumers to cut back not only on discretionary goods but also on necessities, choosing the cheapest alternatives whenever possible.

With one rate cut likely to follow another and economic growth likely to accelerate (perhaps thanks to productivity gains from artificial intelligence), consumers have reason to be more hopeful. Time will tell if this will be enough to fuel the e-shopping frenzy. Regardless, given that most discretionary items are now better purchased online, I’d argue that the following online retailers – PDD, AMZN, MELI – seem best positioned to give back the energy.

So let’s use TipRanks’ comparison tool to check out three e-commerce titans that analysts rate as Strong Buys.

PDD Holdings (formerly Pinduoduo) is a Chinese online retailer that is doing well with its international e-commerce company Temu. Even if you’ve never shopped at Temu, you’re probably familiar with the platform and advertising that allows you to “shop like a billionaire,” so you can shop freely without worrying too much about price. With obscenely low prices on a wide range of goods, straight from the source, Temu appears to be winning the “race to the bottom” in pricing for digital retailers.

With prices that are hard to match, a unique “integrated” shopping experience unique to China, and a world of growth opportunities, Temu stands out as a new breakthrough in e-commerce. All things considered, I remain bullish on PDD stock as it looks set to extend its great two-year run during which the stock has gained almost 150%.

Thanks to this, PDD managed to take control of the Chinese online retailer Alibaba (NASDAQ:BABA) to become China’s largest e-commerce company by market capitalization. Given that Alibaba is in a terrible, multi-year crisis and Temu’s popularity continues to grow, PDD’s run is likely to stick around in the long run.

In the first quarter, Temu helped PDD achieve 131% year-over-year sales growth. This is the kind of growth that makes the additional risk associated with investing in Chinese stocks more forgivable. Nowhere else in the world can you find such growth at 19.7 times price-to-earnings (P/E) ratio, or approximately 13 times forward P/E.

Even more remarkable is the growth in user numbers – by February 2024, the Temu app had been downloaded almost 30 million worldwide. Apparently the ads seem to work. But the big question is whether PDD can keep new customers “shopping like billionaires” in the long run. I think they can, thanks to the lowest prices in the face of inflation and the addictive “gamification” of the platform.

What is the target price for PDD stock?

According to analysts, PDD stock is a strong buy, with 14 unanimous purchases made in the last three months. PDD stock’s $217.75 average price target implies a 46.9% upside potential.

If you want the lowest prices on goods, go to Temu, but you will have to wait a long time for the shipment to arrive at your door. Indeed, if you’re in the US, it may take a few weeks for your Temu order to finally arrive. If time is of the essence and speed is what you need, you will probably want to move your business to Amazon. Prices on Amazon are not excessive, but they are far from the lowest in a given product category. I think that’s the price you pay for the incredible speed of delivery.

Even if Temu can shave a few days off delivery times, it will likely never come close to Amazon Prime’s delivery speeds. Indeed, many logistics innovations are being developed behind the scenes to make same-day shipping possible. With this in mind, I remain bullish on AMZN stock.

Additionally, Amazon is home to many authentic branded goods, many of which cannot be found on Temu. In this context, I don’t see Temu as a huge threat to Amazon’s e-commerce moat. That said, Amazon may lose some business to Temu in this environment where consumers are price-sensitive and willing to wait weeks for their product.

The good news for AMZN shareholders is that Temu and its trendy Chinese e-commerce counterpart Shein have attracted the attention of the Seattle e-commerce titan. Amazon has reportedly cut fees dramatically for cheap clothing (items under $20), a move that should help it retaliate against fast-growing Chinese online retailers looking to disrupt the original e-commerce breakthrough.

What is the target price for AMZN stock?

According to analysts, AMZN stock is a strong buy, with 42 unanimous purchases over the past three months. AMZN’s $221.20 average share price target implies a 20.2% upside potential.

MercadoLibre is an e-commerce and payments company serving Latin America. In Latin American countries, it is actually the Amazon – for example, Brazil, where there is a real Amazon rainforest. Serving emerging markets can have significant long-term growth potential, making MercadoLibre an e-commerce play for those looking for growth first and foremost. Thanks to the solid growth narrative and dominant position in the company’s remit, despite its frothy multiple, I remain optimistic about the stock.

At the time of writing, MELI stock trades at over 70.9 times trailing P/E, which makes AMZN (51.6 times trailing P/E at time of writing) and PDD (19.7 times) seem become relative opportunities. That said, having a dominant position in higher growth markets comes with a higher premium. However, given PDD’s international presence in Temu, I would argue that PDD stock is clearly a better option for value-conscious growth investors.

Looking ahead, analysts expect sales to reach $19 billion in 2024, up 25% year-over-year. With a similar growth plan to the younger Amazon in markets with much greater growth potential, MELI stock appears to be a name worth watching and even buying in the event of a slowdown.

What is the target price for MELI shares?

According to analysts, MELI stock is a strong buy, with 12 buys and 2 holds over the past three months. MELI stock’s $1,921.82 average price target implies a 23.3% upside potential.

Application

The e-commerce market looks poised for strong performance as the economy recovers from an inflationary environment full of unfavorable macroeconomic factors. Believe it or not, Amazon is not the hottest growing company today if you broaden your horizons to include some of the international online retailers. Of the three, analysts like PDD stock the most.

Disclosure