Overstock Spikes and Chewy Slumps as Needham Picks Up Coverage of Etailers
After seeing spectacular growth during the pandemic in 2020, online retail stocks have faced increasing investor scrutiny as Covid-related shutdowns reverse and consumers return to real-life stores. But online shopping continues to take market share—and at least one analyst thinks the time has come to get more aggressive on the stocks in the group.
Needham analyst Anna Andreeva on Thursday picked up coverage of the sector, setting Buy ratings on Overstock.com (OSTK), The RealReal (REAL), Etsy (ETSY), and ThredUp (TDUP), while launching Chewy (CHWY) with a Hold rating.
The group is actually up about 33% for the year to date, Andreeva notes, about twice the gain on the Nasdaq Composite. But she thinks the performance is warranted—she sees 27% sales growth for the group on average over the next two years, an acceleration from pre-Covid levels.
Overstock shares have spiked 5.7% in recent trading, while RealReal is up 2.7% and Etsy is up 0.4%. ThredUp is down 4.8%, and Chewy is off 5.4%. The S&P 500 is down 1.1%.
Andreeva sees evidence that online sales volumes are accelerating. She notes that RealReal this week said that second-quarter gross merchandise value was about $350 million, up 91% from a year ago, and above its previous guidance range of $320 million to $330 million.
“We think we are in [the] early innings of a powerful apparel cycle, aided by a healthier consumer and lean inventory level industry wide,” she writes, noting that spending on apparel and accessories is up about 70% this year through May.
Andreeva adds Overstock to Needham’s “conviction list,” setting a price target of $150, which would be a 75% gain from recent levels. She notes that the stock trades for just one times estimated 2022 sales and calls Overstock “one of the more interesting ideas in e-commerce given a relatively low penetration online for the Home category,” with “a compelling valuation.”
The RealReal, she says, is likely her most controversial pick, given short interest is about 19% of the float and the shares have lagged the group, down about 11% for the year to date. But she says that RealReal and ThredUp—both players in the market for previously owned apparel—are highly leveraged to both the reopening of the economy and supply dynamics, which she says are improving. She sets a target of $35 on RealReal—a theoretical double—and $35 for ThredUp, about 40% above recent levels.
Etsy, Andreeva writes, is “one of the best growth ideas” in the sector, projecting 20%-plus long-term growth in gross merchandise sales, “and an opportunity to retain the record-high number of new users added to the platform in 2020.” She adds: “With the stock down about 20% from the March highs and short interest up 33% since the beginning of the year, we think buy-side expectations already embed some moderation after a stellar 2020.” Her Etsy target is $250, about a 25% gain over recent trading levels.
As for Chewy, she sees the company as “well-positioned” in the pet products sector, but finds that the stock’s valuation is “full.” Andreeva adds that product shortages and a need to invest in higher wages and benefits are near-term headwinds that “could pressure fundamentals and hence valuation.” She also points out that while sales per active customer are improving, net customer ads are running below pre-Covid levels.
Write to Eric J. Savitz at [email protected]