1 growth stock that could produce 10 times the returns

Global-E online (NASDAQ: GLBE) went public in mid-May at $ 25 per share. Since then, the share price has climbed over 200% as investors bought shares of this e-commerce company, and it’s easy to see why. Online shopping is one of the most prevalent trends of our time, and the market is far from exhausted.

However, even though the share price has tripled, it is not too late to add Global-E to your own portfolio. In fact, I think this recent IPO could increase tenfold over the next 10 years. Here’s why.

Image source: Getty Images.

Managing cross-border trade is a great market opportunity

Domestic e-commerce is pretty straightforward, but cross-border sales are a different story. Traders must deal with the complexities of international logistics, language barriers and various regulatory requirements. Traditionally, companies have relied on multiple service providers to solve these problems, but Global-E takes a more holistic approach.

The company offers an end-to-end solution for cross-border commerce. Its platform integrates with a seller’s online storefront, locating details such as language, prices, and shipping options on a market-by-market basis. Global-E also manages import duties and taxes, and provides after-sales customer service and returns management.

Why is this important? International buyers typically account for 30% of web traffic to global e-commerce sites, but international sales are typically only 5-10% of total revenue. In other words, current solutions fail to help sellers take full advantage of this opportunity – and that’s a great opportunity. According to Forrester Research, cross-border e-commerce spending will reach $ 736 billion in 2023.

Global-E has a strong competitive advantage

Global-E has a more holistic solution than any of its competitors, and the company’s numbers support this claim. By optimizing the shopping experience for international consumers in more than 200 destination markets, Global-E helps businesses accelerate cross-border conversions, often by more than 60%.

This creates a flywheel effect. By facilitating transactions and logistics across a wide range of geographies, Global-E collects market-specific data relating to consumer preferences. Using this data, its platform leverages artificial intelligence to emerge relevant information for traders, helping them to further increase international conversion rates.

This accomplishes two things: First, Global-E makes money by taking a share of the gross value of the goods, so that it wins when its merchants are successful. Second, as Global-E’s AI models become smarter, its ability to drive cross-border sales is expected to improve, attracting even more merchants to its platform.

This virtuous circle has already been a powerful engine of growth. In the last quarter, Global-E had 522 merchants on its platform, up 85% from the end of 2019. This increase in adoption has generated impressive performance.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

Switch

Returned

$ 90.1 million

$ 190.3 million

111%

Data source: Global-E SEC filings. TTM: 12 rolling months. CAGR: compound annual growth rate.

Global-E’s gross profit margin has grown significantly over time from 22% in 2018 to 36% in the last quarter. Management attributes this to the growing volume of its market specific data. And the company is well positioned to maintain this momentum.

The Global-E platform is a very sticky product. Gross retention has exceeded 98% since 2018, meaning less than 2% of customers cancel service each year. And net retention reached 172% in 2020, indicating a 72% increase in average customer spend. Either way, these impressive numbers are a testament to the value Global-E creates for its clients.

In addition, the company recently signed a partnership agreement with Shopify, the most popular e-commerce software provider in the United States, Global-E being the exclusive provider of cross-border solutions for Shopify merchants. This could be a big growth engine for both companies – the Shopify platform currently supports 1.7 million merchants, each of whom could easily become a Global-E customer.

The bottom line

Global-E shares are trading at a high price of 59 times sales, but given the company’s strong competitive position and huge market opportunities, this valuation may not seem so crazy in hindsight.

Consider this scenario: To produce tenfold returns, Global-E would need to grow to a market cap of $ 110 billion, and I think it’s possible. If the company can increase its sales by 40% per year through 2031, total revenue would reach $ 5.5 billion. Assuming the stock is trading for 20 times more reasonable turnover at this point, Global-E would have a market cap of exactly $ 110 billion.

Of course, no one knows the future, and I have speculated on several metrics over a long period of time. But it’s not hard for me to imagine this scenario unfolding over the next decade. That’s why I think this growth stock is a smart long-term investment.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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