Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. Luckily for them, the market seems to believe there is a long runway for growth as the industry has recorded a 3.7% gain over the past six months while the S&P 500 was stuck in neutral.
Nevertheless, investors should tread carefully as many internet companies pursue winner-take-all strategies, meaning losses can be hefty if their playbooks don’t pan out. With that said, here is one internet stock boasting a durable advantage and two we’re steering clear of.
Two Consumer InternetStocks to Sell:
Cars.com (CARS)
Market Cap: $703.7 million
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Is CARS Not Exciting?
- Market opportunities are plateauing as its dealer customers were flat over the last two years
- Estimated sales growth of 1.5% for the next 12 months implies demand will slow from its three-year trend
- Earnings per share lagged its peers over the last three years as they only grew by 1.9% annually
At $11.37 per share, Cars.com trades at 3.3x forward EV/EBITDA. If you’re considering CARS for your portfolio, see our FREE research report to learn more.
eHealth (EHTH)
Market Cap: $121.3 million
Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ: EHTH) guides consumers through health insurance enrollment and related topics.
Why Do We Think Twice About EHTH?
- Intense competition is diverting traffic from its platform as its estimated membership fell by 1.8% annually
- Estimated sales decline of 3.4% for the next 12 months implies a challenging demand environment
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
eHealth’s stock price of $4.03 implies a valuation ratio of 2.6x forward EV/EBITDA. Read our free research report to see why you should think twice about including EHTH in your portfolio.
One Consumer Internet Stock to Buy:
Remitly (RELY)
Market Cap: $4.10 billion
With Amazon founder Jeff Bezos as an early investor, Remitly (NASDAQ: RELY) is an online platform that enables consumers to safely and quickly send money globally.
Why Is RELY a Good Business?
- Active Customers have grown by 37.3% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 74% annually, topping its revenue gains
- Free cash flow margin grew by 35.6 percentage points over the last few years, giving the company more chips to play with
Remitly is trading at $20 per share, or 20.3x forward EV/EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
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