Newegg Commerce Inc. (NASDAQ: NEGG) is an online retailer for electronics and computer hardware, based in California it was founded in 2001 by Fred Chang. Newegg has been rather successful and even attracted foreign investment from a Chinese firm, Liaison Investment. Most recently, Newegg has now become a public company after entering into a merger agreement with Lianluo Smart LTD.
This company currently seems like a volatile option, but digging deeper, this e-retail stock is a solid business with plenty of potential for the future. So here are the reasons that Newegg is the one electronic retail stock I am buying right now.
A look at Newegg’s financials
Newegg’s financials are looking relatively healthy, with its annual reports showing significant growth over the past year in revenue; 2020 saw $2.11 billion. However, this has been a bit volatile and they have not produced two consecutive years in growth since 2016. If it continues in this pattern, investors could expect revenue for 2021 to decline again.
However, its earnings per share (EPS) have grown over the past two years, with 2020’s EPS coming in at $0.49. Newegg also finished 2020 with $157 million in cash, up almost 96% from the fiscal year 2019. Overall, the company is relatively healthy financially, however, it will need to sort its revenue issues out to encourage investors to take interest and hold this stock for the long term.
What I like about Newegg
Newegg has the potential to grow and build its business, as it has already been doing this for two decades already. However, there are a number of reasons why Newegg is the one electronic retail stock that you should invest in right now.
This is undoubtedly a stock that retail investors, in general, will love, which is a contributing factor for why the Reddit group r/wallstreetbets picked up on this stock very shortly after it went public.
To start, recently Newegg announced its new built-to-order (BTO) PC assembly service, allowing customers who design computers to have their new PC built by the professionals at Newegg. This new service will build and then deliver fully built computers faster than other competitors; this is only Phase 1. At some point down the line, Phase 2 will then take the data that will be collected in this Phase 1’s offering and use it to produce customizable PC assembly. On the receipt of this news, NEGG shares soared more than 100%.
Newegg is also known for being able to source and sell hard-to-find pieces of hardware. Just the day before the BTO news, the company held a shuffle drawing event that offered 4 Nvidia models to buy, some of which have been very difficult to find; the RTX 3060, RTX 3070, RTX 3070 Ti, and RT X 3090. It has a very good relationship with hardcore games with its willingness to reserve rare parts such as the Nvidia RX3000-series graphics card.
The company has also got a hand in esports. In 2019, the company entered into a deal that named it as a founding partner as well as the officially named e-commerce partner for the HyperX Esports Arena Las Vegas that opened a year before. Along with its involvement in other areas of the esports industry, this company will certainly have a dedicated list of gamers and retail investors alike who fully believe in its future prospects.
Risks to Newegg’s share price
Unfortunately, as this stock has arrived into meme-stock territory, it is now heavily overvalued. This means that it is very likely to come crashing down at some point in the near future. Additionally, this is a new stock, having gone public via reverse merger in May. As with all new stocks, it takes a while for their stock price to stabilize. Unfortunately, in this case, the fact that the company was almost immediately picked up by r/wallstreetbets will likely encourage even more volatility down the line.
Newegg’s growth potential
The potential of this stock outstrips the volatility that it is most likely to experience over the next few months. Its new professional PC assembly service is a huge hit, particularly with the ability to customize PC designs in the future. Additionally, its relationship with the gamer community is one that will continue to grow, particularly with the extra advertisement it gets from being an official partner of the HyperX Esports Arena.
If Newegg seems too risky for you at the moment, then this would definitely be a great stock to add to your watchlist.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Poppy likes companies that go the extra mile. Her favorite stock is Amazon because she is fond of its innovation, variety, and creative solutions to sustainability.