Consumer internet businesses are redefining how people engage with the world by giving them instant connectivity and convenience. The new habits they’re cultivating are also unlocking the next leg of growth for the industry, which has gained 7.8% over the past six months. Investing here would have been wise - at the same time, the S&P 500 was flat.
However, long-term winners that can stand the test of time are rare in this space because competition is fierce with many well-capitalized companies. Keeping that in mind, here are two internet stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Consumer Internet Stock to Sell:
eHealth (EHTH)
Market Cap: $208.4 million
Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ: EHTH) guides consumers through health insurance enrollment and related topics.
Why Does EHTH Worry Us?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Negative free cash flow raises questions about the return timeline for its investments
eHealth is trading at $6.75 per share, or 4.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why EHTH doesn’t pass our bar.
Two Consumer Internet Stocks to Watch:
Roblox (RBLX)
Market Cap: $40.28 billion
Best known for its wide assortment of user-generated content, Roblox (NYSE: RBLX) is an online gaming platform and game creation system.
Why Is RBLX on Our Radar?
- Daily Active Users have grown by 21.7% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Forecasted revenue growth of 19.8% for the next 12 months indicates its momentum over the last three years is sustainable
- Word-of-mouth marketing drives organic user growth, eliminating the need for costly advertising campaigns
At $60.01 per share, Roblox trades at 38.8x forward EV-to-EBITDA. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Remitly (RELY)
Market Cap: $4.28 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 Do We Love RELY?
- Active Customers are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Additional sales over the last three years increased its profitability as the 88.9% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin jumped by 19.3 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Remitly’s stock price of $21.48 implies a valuation ratio of 23.4x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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