Although e-commerce is a relatively new retail-related industry, this subsector is well-developed in the US compared to other global regions. Two e-commerce giants, Amazon (AMZN) and eBay (EBAY), dominate this subsector.
As can be seen from the chart below, Amazon (AMZN) provided a total return of 108.6% over the last year, and eBay (EBAY) returned 26.65% during the same timeframe. In contrast, traditional retailers Walmart (WMT) and Macy’s (M) had returns of -29.7% and -36.4%, respectively. E-commerce companies have also beaten the SPDR S&P Retail ETF (XRT), which can be considered to be a proxy for the US retail sector.
High valuation multiples
A company’s investors are actually investing in the company’s future ability to make a profit. A high price multiple means that the market consensus is that the underlying metric should improve.
As of December 1, Amazon’s (AMZN) forward price-to-earnings (or PE) multiple of 158.2x looks expensive when compared to its brick-and-mortar retail peers Walmart (WMT) and Target Corp (TGT). Walmart’s forward PE multiple is 13.8x, and Target’s forward PE multiple is 14.4x. The broad industry is trading at a PE multiple of 20.9x.