Online Retail Stocks Are Likely to Shine Again This Year; Here’s Why

Online retail companies have been flourishing over the past couple of years, driven by changing market trends and customers focus on digitalization and e-commerce. These companies have gained hundreds of billions of dollars of market cap in the previous few years. Amazon (NASDAQ:AMZN), which emerged as the largest U.S. online retailer had hit a market cap of $890 billion last year. The Chinese online retailer Ali Baba’s (NYSE:BABA) market cap peaked at $570 billion.

eBay, JD.com, and Etsy are also among the biggest gainers in the online marketplace.

Source: Morningstar.com

The stock prices of these companies boomed along with the growth in their market share, revenues, and profits. Amazon’s share price, for instance, rose close to 170% in the last three years. The substantial growth in share price was supported by revenue increase of 135% in the past three years. Its revenue had hit a record level of $232 billion in fiscal 2018; the company had generated earnings of $20 per diluted share.

Source: Morningstar.com

Similarly, the share price of Ali Baba (BABA), the largest Chinese retailer, doubled in the past three years driven by significant growth in its market share.  Ali Baba revenue grew 135% in the past five years and the e-commerce company had reported $19 diluted earnings per share in fiscal 2018.

Online retailers are likely to extend the momentum in fiscal 2019. The threat of trade war is fading after China and Donald Trump is expected to reach a trade agreement. The improving global economic outlook always has a positive impact on sales of online retailers. Donald Trump has changed its aggressive tone against China over the last few months; the president says he plans to boost U.S. GDP growth to 3% in the coming years.

Source: Twitter.com

He has urged China to eliminate tariffs on U.S. agricultural imported products, adding that trade talks are going well. The U.S. has previously announced to suspend the planned tariff increase until further notice.

Improving market fundamentals would offer support to sales growth acceleration. Amazon expects to generate 20% sales growth in fiscal 2019 to a new record level. Ali Baba, on the other hand, anticipates sales growth in the range of 40% from the previous year. Overall, online retail stocks are in a strong position to extend their share price momentum this year. The trade deal between two big economics could be the biggest catalysts for this industry.