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Why MercadoLibre, Shopify, and Sea Limited Stocks Crashed

The Motley Fool
The Motley Fool
 2022-01-24

What happened

In case you hadn't noticed yet, the stock market kind of curled up in a ball and died today. As of 12:40 p.m. ET, the Dow Jones Industrial Average is down a disheartening 3.2%, and the Nasdaq is down 4.6%.

But don't panic, this happens from time to time , and from one perspective, all it really means is that stocks are going on sale.

Of particular interest to growth investors today is the fact that some of the fastest growing e-commerce stocks in the world are going on sale, with shares of MercadoLibre (NASDAQ: MELI) down 8.6%, Shopify (NYSE: SHOP) falling 10%, and Sea Limited (NYSE: SE) leading the pack lower with a 12.3% loss.

https://img.particlenews.com/image.php?url=3i5gVN_0duMfXso00

Image source: Getty Images.

So what

Aside from the fact that pretty much all stocks are in the red today, however, there's no particular reason why these three stocks, specifically, are selling off -- other than valuation concerns, at least. As it turns out, Shopify is the only one of the three with any obvious news on the wires, and even that news isn't too awfully bad.

Specifically, investment banker Wedbush cut its target price on Shopify this morning, citing concerns that the company's third-party logistics (3PL) strategy wasn't providing the "market advantage" Shopify was looking for, reports TheFly.com , and that Shopify has begun terminating contracts with 3PL providers as a result. Despite this concern, Wedbush still sees Shopify stock as bargain-priced at under $900 a share -- and predicts it will end the year closer to $1,300.

Now what

Personally, I don't know that I'd go that far in recommending Shopify. What I will say is that with $103 billion in market capitalization and $3.4 billion in earnings under generally accepted accounting principles ( GAAP ), Shopify at 30 times earnings is finally starting to look reasonably priced to me -- and the more it drops, the more like a bargain Shopify stock looks.

Shopify certainly looks like more of a bargain than MercadoLibre at 619 times earnings, or Sea Limited, which although it does boast positive free cash flow , remains GAAP unprofitable to this day. In a world where stock prices have suddenly become dramatically cheaper, I think investors are best advised to pick the lowest-hanging fruit first .

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends MercadoLibre, Sea Limited, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy .

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