Sea Limited’s share price has seen an unstoppable surge to all time high of over $370 a piece this week. The largest Singapore-based company backed by Tencent went public in Oct 2017 at $15 a share. Since the start of the year, SEA has risen more than 80% from $196 a share to $355 a piece at the close of this week.
The share price performance has been remarkable! Since my last post in Aug 2021, Sea’s price continues to find new high.
AGGRESSIVE GROWING PLANS
“Sea” is likened to South East Asia, but do not be fooled by its company’s name. Sea’s business outreach is global today and the company has no intention to stop growing.
Garena, the gaming arm of Sea’s Free Fire game is an internationally famous game. Free Fire is the highest grossing mobile game in Southeast Asia, Latin America and India, as reported mid this year. Performance in US does not pale too. The flagship game was the second highest grossing mobile game on Google Play for the second quarter of 2021, according to App Annie3 .So far, Garena has been Sea’s cash cow generating all the profits and cashflow.
On the contrary, Shopee, the e-commerce arm of Sea has been burning money widening its losses YoY while growing top line revenue. The losses however did absolutely nothing to dampen Shopee’s growing plans.
In the last two months or so, Shopee announced foray into France and Spain, planning to launch online sales. Polish news website Wiadomoscihandlowe.pl also reported on Shopee’s expansion into Poland. This aggressive expansion is in parallel with plans to launch in India and more in Latin America with its footprints already in Brazil and Argentina.
The company is also planning to employ more than 1,600 full time staff mainly in Singapore Manila, Philippines and HCM, Vietnam as shown in its career portal to bolster its over 33,000 existing workforce shown in Linkedin.
WHY INVESTOR STILL POUR MONEY INTO SEA?
Many US Tech Stocks have already achieved new ATHs limiting investors’ appetite. The Tech clamped down in China definitely did Sea Limited a big favour. Investors are still uncertain about any new China regulations negatively impacting the China Tech giants, hence holding back on their investments.
Furthermore, since Covid, interest rate had become low again resulting in abundance of superfluous flow of cheap money. And this money has to go somewhere to invest rather than keep in the bank to earn near zero interest rate.
With that being said, Sea appears to be a good choice to park the money! This thinking is supported by the company’s growth plans as well as being Head Quartered in Singapore backed by financially by Temasek and “sort of politically” supported by Singapore government. Hence Sea has advantage of being impervious to any regulatory changes.
CAN SEA LIMITED CONTINUE TO HIT NEW HIGH?
The big question is can Sea continue to hit new high in its Share Price?
Fundamental Analysis losing its favour
To answer this question, I first have to explain that Fundamental Analysis (FA) no longer makes as much sense as in the past in relation to stock price. At the time when Warren Buffett started his investment journey at the age of 11-year-old, he honed his FA skills, helping him to build his Berkshire Hathaway empire.
Today, FA makes little sense for many Tech companies’ share price. Investors are buying into the future potential more than analysing the company’s current fundamentals. This can be one reason that accounted for the surge of Sea’s share price.
Limited choice of big e-commerce platforms in Western world
If you are asking me if Sea still have room for growth.
My answer is a big yes!
This is because Western countries outside China have limited choice of big e-commerce platforms other than Amazon. Furthermore, Sea’s competitor Alibaba is still under China’s watchful eyes with Jack Ma’s future in the company also in uncertainty. Hence, it is apparent that Alibaba’s growth will somehow be greatly restricted, let alone in Europe or Northern America by them being a Chinese company.
However, Sea is seen as a Singaporean company in a “friendly” country like Singapore, that has always enjoyed good relationships with the European and American counterparts. Therefore, Sea’s e-commerce business can naturally be the alternative choice apart from Amazon.
IS SEA LIMITED’S SHARE PRICE EXPENSIVE?
Yes Sea’s share price is definitely expensive. The company has yet to be profitable.
Let’s however than analysed the Price to Sales (PS) ratio. PS ratio is defined as the Market Cap over Revenue.
Sea has a Market cap of 195.7 USD Billions. For revenue in 2021, the management of Sea expected a 122% growth from 2020’s 4.4 USD Billions revenue. Hence, projected 2021 revenue is ~ 9.8 USD Billions.
Hence PS ratio is ~20 based on current price of 355 USD.
Sea Vs Amazon
In comparison, Amazon has a market cap of 1.7 USD Trillions. Projected 2021 PS ratio is 4.0.
For comparison, we then consider Sea’s revenue growth projections to be doubling each year, while Amazon growth projection is ~ 15%, then,
PS /Growth as follows:
- Sea = 20 /100 = 0.20
- Amazon = 4 /15 = 0.27
Amazon seems more expensive at current share price!
So while the stock of Sea seems unquestionably high on surface, BUT if the company can continue its top line doubling growth YoY, it is likely that investors will choose Sea over Amazon.
However if interest rate start to rise again, and “easy-money” is squeezed, then we are likely to see a retracting of its share price.
PS: I am invested in Sea Limited at the time of writing. Please read my disclaimer.