The recovery is well underway in this pandemic stock

 

  • Sea Limited’s long-awaited recovery might finally be at hand.

 

Will Healy (Sea Limited): After a brutal selloff in the 2022 bear market, it might be finally time to pivot back to Sea Limited (SE 1.38%). The Singapore-based conglomerate prospered during the pandemic as its retail, gaming, and fintech segments served its locked-down customer base.

However, conditions turned negative as the pandemic ended. In addition to the 2022 bear market, the world’s most populous country, India, banned its popular smartphone game, Free Fire. Free Fire boosted its gaming segment Garena during the pandemic, but the game lost some of its popularity after 2021.

Moreover, instead of investing in logistics in its core Southeast Asian markets, where it is the leading online retailer, its retail arm, Shopee, entered markets in Europe and Latin America, where it held no competitive advantage.

All of these factors led to the stock falling 91% between the fall of 2021 and the beginning of 2024.

Fortunately for Sea Limited shareholders, Shopee exited most of its non-Asian markets and has invested heavily in logistics infrastructure in its home region. Moreover, Free Fire has experienced a resurgence in popularity, and Garena continues to work with the Indian government to bring Free Fire back to that country.

Additionally, fintech arm Sea Money has continued to prosper, and in the first half of 2024, it was a contributing factor in Sea Limited's revenue rising 23% yearly to over $7.5 billion.

However, a 73% increase in sales and marketing expenses sent net income plunging. The majority of that increased spending pertained to e-commerce investments, while it also invested heavily in its Sea Money operations, an investment that should lead to higher revenues and profits longer term.

Investors seem to have taken this news well, as the stock is up over 115% over the last year. Also, while the lower net income skewed the P/E ratio, its price-to-sales (P/S) ratio of 3.8 is not far above a much larger e-commerce conglomerate, Amazon (AMZN 1.80%), at 3.3 times sales.

When considering that the stock is still 75% below its 2021 high, such a valuation may still position Sea Limited for significant gains in 2025.