Are you familiar with Sea Limited (NYSE:SE) yet? If so, you are likely aware that SE stock has rallied 160% so far in 2020 and 70% in about five weeks. This name has been on fire, but continues to fly under most investors’ radar.
Because the stock has been so strong lately, it’s likely best for many investors to let it cool down. But once there is a buy-the-dip opportunity, they should pounce on this one.
Put simply, Sea Limited has the growth potential to drive strong gains across the board. The question is whether its robust rally already reflects that and whether SE stock will be able to avoid a large drawdown should a broader market selloff come along.
For those unfamiliar with the name, Sea Limited is a South Korean company in the internet and mobile space. It operates in several main segments, including digital entertainment, e-commerce and digital financial services.
SE Stock Has Growth
I really like SE stock, because it flies under the radar for so many investors. Oftentimes, these overlooked equities can present big-time opportunities. With Sea Limited tripling off its novel coronavirus lows though, it’s certainly starting to catch more attention.
That said, it has the revenue growth to back it up. Analysts expect revenue to grow about 50% this year, followed by 40% growth estimates in the following year.
At a time when many companies are simply trying to survive, Sea is still focusing on how to thrive. The revenue growth here shows as much, as secular growth themes continue to drive its top-line results.
We’re seeing similar themes play out in more well-known stocks. Digital financial services continue to drive Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) to new highs. Gaming is driving Nvidia (NASDAQ:NVDA), Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) to new highs, too. Amazon (NASDAQ:AMZN), Etsy (NASDAQ:ETSY) and Shopify (NYSE:SHOP) are trading at all-time highs as e-commerce trends are in their favor.
For SE stock, the long-term themes are working, but the company needs to deliver.
The Sea Isn’t Always Calm
Every rose has its thorns and Sea Limited isn’t the exception. First, while revenue growth is forecast to be strong this year and next year, it’s down notably from the prior years. In 2018, revenue roughly doubled. In 2019, sales growth accelerated to 163%.
While growth forecasts of 50% is still impressive — and while we can’t expect a company to grow sales at a triple-digit rate forever — investors should know this is still down notably from prior years.
Further, Sea isn’t profitable. Net losses at the company continue to accelerate. Its net loss in 2019 was $1.46 billion. In 2015, that net loss was $103.4 million. That’s a big jump in five years.
In short, although revenue has surged over the years, so too has the company’s losses. Sea Limited is also not free cash flow positive, although it did make a positive step toward break-even free cash flow last year.
On the bright side, SE stock is forecast to improve its bottom line. Analysts expect the company to lose $1.68 per share this year, an improvement from the $2 per share loss last year. In 2021, estimates call for a loss of 96 cents per share, another year-over-year improvement.
Additionally, there are no balance sheet concerns. The company has more than $2.6 billion in cash and short-term investments, while current assets dwarf current liabilities $4.05 billion to $2.42 billion.
Long-term debt has been increasing, but stands at just $1.37 billion, which is not a big concern for a company with a $50 billion market capitalization.
Bottom Line on SE Stock
A look at the chart above must get bullish traders very excited. I am not one to bet against the trend, but this stock has been very hot. It’s tough to pull the buy trigger when the stock is up more than 200% in just a few months.
Let’s wait for some air to come out of the balloon first, then step up as buyers for SE stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.