Long-term investors generally don’t focus on analyst price targets because these targets only forecast the next 12 months. That said, investigating what might drive businesses up or down to achieve this goal can be a worthwhile exercise. Importantly, you might also find a long-term winner in the making.
Global-e online (GLBE -0.18%) could be one of those big winners. The company provides cross-border e-commerce solutions that make it easier for businesses to sell goods internationally. Morgan Stanley Analyst James Faucette has a price target of $51 for the company, implying a significant upside from the current stock price.
While this represents an aggressive rise in the company’s stock price over just one year, here’s why Global-e could meet and possibly exceed this long-term price target.
One of the few e-commerce companies that continues to grow rapidly
E-commerce stocks have fallen recently, with shares of big companies like Shopify and Etsy down more than 60% from their all-time highs. Indeed, the e-commerce industry has experienced a downturn. With high inflation and a possible recession, e-commerce businesses are experiencing a drop in demand for discretionary goods. Global-e followed suit: it was down 59% from its all-time high.
Global-e facilitates international e-commerce transactions and takes a portion of each sale to provide fulfillment services and access to its cross-border platform. Therefore, if its customers’ sales decline, Global-e’s revenue also declines.
The company has seen continued adoption of its services during this challenging time. Second-quarter revenue soared 52% year-over-year to $87 million, and the gross volume of goods it facilitated increased 64% over the same period to 534 millions of dollars. It could have been delayed by its big-name clients like waltz disney and Adidas — both of whom have increased their use of Global-e.
This price target is not unreasonable
This continued success shows the crucial role of the company with its merchants. One of the primary ways a merchant expands their footprint is to sell internationally, which can be challenging. After all, e-commerce businesses have to deal with different languages, payment options, taxes, and regulatory requirements when selling internationally. Global-e helps companies manage these pain points, which greatly facilitates cross-border trade.
The company is a must-have service for traders who don’t want to deal with these hassles. As a result, Global-e’s churn rate has remained below around 2% since 2018. As investors have seen this year, customers continue to rely on Global-e for international sales, despite this challenging macroeconomic environment. .
Additionally, customers continue to increase their use of the platform. In the first quarter, the company’s net retention rate was over 130%, and it has remained above that level since 2018. Having low churn and high customer expansion rates for a period that has been difficult for traders indicates that Global-e could be here to stay and thrive for the long term.
How Global-e could falter
Global-e is not a risk-free investment, and there are a few things to watch out for. The first is the company’s lack of profitability. Over the past 12 months, Global-e posted a net loss of $153 million. That said, Global-e generated cash during the same period, recording free cash flow of $45 million. With over $268 million in cash on the balance sheet, the company also has the cash to fuel that unprofitability for some time.
Competition is the most important concern. Global-e mainly sells to independent e-commerce players selling direct to the consumer. Third-party services like Amazon, however, might have in-house cross-border capabilities. Therefore, if Global-e customers change course and rely on Amazon to sell products instead of its own site, it might be easier to use Amazon’s cross-border services.
Another concern is the valuation of Global-e. Stocks aren’t cheap at 17 times sales, meaning most of the stock’s future appreciation should come from earnings growth rather than multiple appreciation.
That said, the company appears solid in its niche and could see the adoption needed to see the stock soar. Global-e is gaining traction among many established brands, and given its low churn, it could stay that way for the long haul. The company has the potential to hit Faucette’s price target (and possibly even skyrocket multiples higher than that target) over the long term.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jamie Louko holds positions at Amazon, Etsy, Global-e Online Ltd., Shopify and Walt Disney. The Motley Fool occupies and recommends Amazon, Etsy, Global-e Online Ltd., Shopify and Walt Disney. The Motley Fool recommends the following options: January 2023 Long Calls at $1,140 on Shopify, January 2024 Long Calls at $145 on Walt Disney, January 2023 Short Calls at $1,160 on Shopify, and January Short Calls 2024 at $155 on Walt Disney. The Motley Fool has a disclosure policy.