The Zacks Internet - Delivery Services industry primarily comprises companies that provide services via Internet-based platforms. Their offerings include food delivery, online travel booking, direct marketing, media services and web hosting.
Since most of the industry participants are in the growth phase, they are spending more on R&D as well as sales & marketing, which is curbing profitability growth.
Here are the three major themes in the industry:
- Internet is ubiquitous and the increasing usage of smartphones is changing the delivery landscape. The companies in this industry are benefiting from growing number of Internet users coupled with rising Internet penetration rates and rapid adoption of 4G Volte technology. Further, the emergence of 5G technology, which promises a rapid improvement in speed, bodes well for this industry.
- Shift in consumer preferences, driven by convenience and easy accessibility, is expected to keep the industry’s momentum going. Notably, the robust shift from offline to online food ordering and rising online travel booking bode well for the industry players.
- Online delivery is yet to expand beyond the major metros, reflecting significant room for growth. However, as expansion into new markets will take some time to generate volumes, higher upfront costs are likely to hurt profitability.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet – Delivery Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #113, which places it at the top 44% of 256 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have decreased 28.3%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Internet - Delivery Services Industry has lagged the Zacks S&P 500 composite but surpassed its own sector in the past year.
The stocks in this industry have collectively lost 6% compared to the Zacks Computer and Technology sector’s decline of 6.6%. The S&P 500 has however increased by 1.6%.
One Year Price Performance
Industry’s Current Valuation
On the basis of price-to-sales ratio (P/S), which is a commonly used multiple for valuing Internet delivery stocks, the industry is currently trading at 1.17X, lower than the S&P 500’s 3.13X and the sector’s 3.27X.
Over the past five years, the industry has traded as high as 6.34X, as low as 1.17X and recorded a median of 1.67, as the charts below show.
Price-to-Sales Ratio (TTM)
Price-to-Sales Ratio (TTM)
Rising Internet penetration rates in the emerging markets, a burgeoning affluent middle class and rapid adoption of smartphones should continue to drive the industry’s growth.
Here, we present three stocks that either have a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy). These stocks are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Foster City, CA-based QuinStreet, Inc. (QNST - Free Report) is a provider of online direct marketing and media services. This Zacks Rank #2 stock has gained 39% in the past year. The Zacks Consensus Estimate for its current fiscal-year EPS has remained stable at 65 cents over the past 30 days.
Price and Consensus: QNST
Bitauto Holdings Limited (BITA - Free Report) is engaged in providing Internet content and marketing services for automotive industry in China. This Zacks Rank #2 stock has seen a 48.7% decline in its share price over the past year. The Zacks Consensus Estimate for its current fiscal-year EPS has remained unchanged at $1.38 over the past 30 days.
Price and Consensus: BITA
Vipshop Holdings Limited (VIPS - Free Report) is an online discount retailer for various brands in the People's Republic of China. The company offers apparel for men and women, shoes for casual and formal occasions, and accessories for women and men. This Zacks Rank #2 stock has seen a 35.5% decline in its share price over the past year. The Zacks Consensus Estimate for its current fiscal- year EPS has increased 3.6% to 58 cents over the past 30 days.
Price and Consensus: VIPS
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>