The second quarter was a rough one for e-commerce stocks.
A number of big names plunged on earnings as they faced difficult comparisons with Q2 2020 when lockdowns drove a surge in online sales. Amazon, for example, fell nearly 8% on its earnings report after the company missed revenue estimates with growth slowing from 44% in the first quarter to 27% in the second quarter. At Etsy, which fell 10% on its second-quarter earnings report, the drop-off was even steeper as the artisan-based online marketplace posted revenue growth of 23% compared to growth of 132% in the first quarter.
Some popular e-commerce stocks, like Wayfair and Wish.com-parent ContextLogic, even saw sales decline in the second quarter, showing the sudden headwinds that much of the online retail sector is facing as consumers return to regular spending habits and shopping in brick-and-mortar stores.
However, one e-commerce stock outperformed all of the companies above, but it's still mostly ignored by Wall Street.
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An overlooked online retailer
CarParts.com (PRTS 0.70%), which was formerly known as U.S. Auto Parts before the company was overhauled under CEO Lev Peker, posted 32% revenue growth in its second quarter to $157.5 million, which was well ahead of estimates at $133.4 million. While that marked a slowdown from the first quarter, it was still ahead of CarParts.com's long-term goal of 20% to 25% annual revenue growth, and it shows its ability to deliver strong growth even after it lapped a quarter with 61% revenue growth a year ago.
The company also delivered a record adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in the quarter at $8.3 million up from $5.6 million as strong demand helped the company control marketing expenses in the quarter. Peker noted on the earnings call, "We really had more demand than we could handle." On a generally accepted accounting principles (GAAP) basis, the company reported earnings of $0.04 a share, up from $0.03 a year ago, which was much better than expectations of a loss of $0.04.
The company ramped up capacity at its new warehouse in Texas; it's planning to expand that facility and add a new warehouse in Jacksonville, Florida next year. Those warehouses should help drive continued growth in the business as its revenue is closely tied to its warehouse capacity, which is now above 1 million square feet, and will be more than 1.2 million square feet next year.
CarParts.com also announced a new $30 million share repurchase authorization, a bit of an unusual move for a growth stock, but Peker said that the stock has been volatile and he wants to be able to take advantage of any volatility in the stock to deliver ROI to investors should an opportunity arise. In an interview with The Motley Fool, Peker said he believed that the stock was undervalued, but added, "We wouldn't be buying it back at these levels." He also noted that the stock was one of the most shorted on the Nasdaq, so the buyback programs act as a way to ward off bearish bets on the stock and take advantage of any declines in the price.
Growth at a reasonable price
The surge in e-commerce stocks during the pandemic has led to stretched valuations in much of the sector, but CarParts.com still looks reasonably priced, trading at a price-to-sales ratio of 1.5, which compares favorably to other direct online retailers like Wayfair at 2.3 and Chewy at 5.2.
With CarParts.com, investors can get both value and growth, buying shares of an overlooked company targeting long-term revenue growth of 20% to 25% and 8% to 10% EBITDA margins; which is disrupting the auto parts industry with a private-label, online-only model.
Additionally, the company should continue to benefit from tailwinds in the auto parts industry as the average age of a car on the road in the U.S. is 12 years old, meaning that overall demand for auto parts should remain high. The demand levels the company saw in the second quarter bode well for future growth.
While stocks like Amazon, Etsy, and Wayfair have gotten much of the attention in e-commerce recently, investors should take a closer look at CarParts.com, as the auto parts retailer looks to be in a similar position to where those stocks were just a few years earlier.
