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.

We ran an additional screen to further narrow down our list, this time looking for companies with a return on investment (ROI) higher than the industry average. ROI is a performance metric that assesses the profitability of an investment by dividing the benefit of an investment by its cost. The formula for calculating ROI is:

ROI = (Gain from Investment – Cost of Investment) / Cost of Investment

In the formula, gain from investment describes the money earned from selling the investment.

We were left with two stocks on our list.

Click on the image below to see sales data over time. Sourced from Zacks Investment Research.

Do you expect the growth in e-commerce to help these stocks maintain a high ROI? Use this list as a starting point for your own analysis.

1. Inc. ( STMP): Provides Internet-based postage solutions.

Market cap at $618.98M, most recent closing price at $40.47.

Diluted normalized EPS increased from 0.38 to 0.64 during the first time interval (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).

For the second time interval, diluted normalized EPS increased from 0.64 to 1.73 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31).

And for the last time interval, the EPS increased from 1.73 to 2.3 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31).

TTM Return on Investments at 27.3% vs. an industry average at 10.84%

2. OpenTable, Inc. ( OPEN): Provides restaurant reservation solutions in the United States, Canada, Mexico, Europe, and Asia.

Market cap at $1.67B, most recent closing price at $72.30.

Diluted normalized EPS increased from 0.23 to 0.28 during the first time interval (12 months ending 2010-03-31 vs. 12 months ending 2009-03-31).

For the second time interval, diluted normalized EPS increased from 0.28 to 0.55 (12 months ending 2011-03-31 vs. 12 months ending 2010-03-31).

And for the last time interval, the EPS increased from 0.55 to 0.8 (12 months ending 2012-03-31 vs. 12 months ending 2011-03-31).

TTM Return on Investments at 16.81% vs. an industry average at 10.84%


( List compiled by Mary-Lynn Cesar, Kapitall contributor. Accounting data sourced from Google Finance. EPS data sourced from Yahoo! Finance. All other data sourced from Finviz.)