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TheStreet Open House

2 E-Commerce Stocks With Strong Profits And ROI

Stocks in this article: OPEN STMP

Mary-Lynn Cesar, Kapitall: US retail e-commerce sales totaled an estimated $64.77 billion in Q2 this year, according to the latest quarterly retail e-commerce report from the US Department of Commerce. The figure reflects a 4.9% increase from $61.72 billion in the previous quarter and an 18.4% jump from $54.69 billion in the second quarter last year.

[ Dig Deeper:  Compare analyst ratings to annual returns  for stocks mentioned.]

In addition, e-commerce sales account for 5.8% of all domestic retail sales, which reached a staggering $1.13 trillion in the second quarter. This is the largest portion of total retail sales attributable to e-commerce since the Department of Commerce started tracking the data in the fourth quarter of 1999.

The numbers confirm what many already know: consumers are doing more of their shopping online. Back in March, technology and market research firm Forrester forecast a 13% growth in US e-commerce sales this year, resulting in an unprecedented $262 billion. Amazon’s (AMZN) second quarter earnings benefited from the ongoing rise in US e-commerce sales – while the retail giant again failed to deliver a profit last quarter, increased sales in North America helped drive its revenue up by 22% year-over-year to $15.7 billion.

Investing ideas

As the Department of Commerce report illustrates, Americans are increasingly turning to the Internet to carry out their shopping. Drawing our inspiration from e-commerce’s rising prominence in day-to-day retail, we decided to screen for e-commerce stocks (retail and services) experiencing a similar rise in profits.

To begin, we constructed a universe of US e-commerce stocks derived from Bloomberg’s lists of e-commerce products and e-commerce services stocks. Next, we screened that universe for stocks with increasing profits as illustrated by rising diluted normalized earnings per share (EPS) for the last three consecutive years.

EPS refers to the amount of profit allocated to each outstanding share of common stock. Diluted normalized EPS differs from normalized EPS because it takes convertible securities into consideration. Examples of these convertible securities include options, warrens, and convertible preferred shares, all of which could be exercised and lower a company’s net income. Consequently, diluted normalized EPS tends to be lower as well as more conservative than normalized EPS.

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