E-commerce stocks have been on fire since 2020. It’s not surprising to me. In the UK alone, more than 750,000 brick & mortar stores were temporarily closed due to the pandemic. Consumers had to turn to online stores for their retail therapy.
Over the last 15 years, the volume of online sales has been consistently rising. And I think the pandemic has only accelerated its adoption. So, with that in mind, here are two e-commerce-linked stocks that I’m keeping a close eye on.
A leading stock in e-commerce logistics
One challenging aspect of running an online retail business is order fulfilment. After all, setting up and running a delivery infrastructure is quite a complex process. That’s where Clipper Logistics (LSE:CLG) comes in. The growth stock provides a wide range of services, including e-fulfilment, returns management, and logistical solutions, specifically for the retail sector.
While this is undoubtedly a niche market, the firm appears to be providing an essential service for many leading businesses. The list includes ASOS, Imperial Brands, and Morrisons, to name a few. And with online sales becoming an essential revenue channel for many businesses, Clipper continues to grow its roster of clients. Just recently, it signed a letter of intent with retailer JD Sports Fashion to provide its services.
Seeing this rising level of demand has unsurprisingly resulted in double-digit revenue growth. But it seems that years of stellar performance have driven up investor expectations considerably. The e-commerce stock currently trades at a P/E ratio of 45. That’s quite a lofty premium. Therefore, any form of bad news could create a significant amount of volatility.
Personally, I think there are cheaper growth opportunities out there. But should the Clipper Logistics share price take a tumble, I may be tempted to snatch up some shares for my portfolio.
The UK is running out of warehouse space
Another problem created by selling goods online is having the space to store inventory. Due to the surge in demand, finding prime real estate in ideal locations is proving to be quite challenging. And so, rental fees are rising. This is fantastic news for Warehouse REIT (LSE:WHR).
The dividend stock owns and operates small to medium-scale warehouses to fulfil the ‘last mile’ side of delivery. As the firm is registered as a real estate investment trust, 90% of net profits are returned to shareholders in a sizable 4% dividend yield. The rest is used in combination with debt financing to acquire depreciated properties in good locations. It then renovates these sites before leasing them out to businesses at a premium.
This business model has proved to be quite lucrative over the years. But it’s not without its flaws. Warehouse REIT is not without its competitors. And beyond the initial expense, the barriers to entry for this industry are pretty low. Suppose the supply of warehouse space eventually surpasses the level of demand? In that case, property values would likely fall, as would rental rates. Needless to say, that could jeopardise the dividend yield in the long term.
This is another e-commerce stock that looks like a tempting addition to my portfolio. But it’s also trading at a premium of around 13% to its book value. So if the share price comes down, I’d definitely consider adding it to my portfolio.