Holiday season is finally underway and shoppers are already waiting to capitalize on Black Friday and Cyber Monday deals. This is great news for all retailers including Newegg Commerce, Inc. (NASDAQ: NEGG). The e-commerce retailer specializing in electronics has been struggling lately due to the weakness of the PC market resulting from weak demand, excess supply, and worsening macro conditions. Fortunately for Newegg, many analysts expect the PC market to rebound in 2024 as the business PC market is entering the next replacement cycle driven by the Windows 11 upgrades. At the same time, consumer PC demand is expected to recover as PCs purchased during the pandemic are entering the early stages of a refresh cycle. Considering that the company’s sales are directly correlated to the conditions of the PC market, NEGG stock could be at an attractive valuation at current levels for long-term investors.
NEGG Fundamentals
Seasonal Boost
Q4 has always been Newegg’s best in terms of revenue. Over the last 3 years, we can see that the most revenue it reports is in Q4. As such, NEGG stock may run over the coming weeks as we are in holiday season.
Quarters 2022 2021 2020
Q1 $445,270,000 $603,436,000 $431,350,000
Q2 $445,270,000 $603,436,000 $431,350,000
Q3 $349,158,000 $540,898,000 $554,023,000
Q4 $480,575,000 $628,455,000 $698,149,000
Looking to boost sales in this season, the company recently unveiled its November sales plans including Black Friday-related deals all month to help shoppers get a head start on holiday shopping. After all, 39% of shoppers plan to start their holiday shopping in November, per a recent Shopify-Gallup survey.
With that in mind, this holiday season has the potential to be the best in many years as the same survey found that 74% of shoppers expect their holiday gift budget to remain the same or increase compared to last year. As is, a September report from Deloitte forecasts retail sales to grow between 3.5% and 4.6% YoY, driving holiday sales to between $1.54 trillion and $1.56 trillion between November 2023 and January 2024.
This bodes well for Newegg since according to the Shopify-Gallup survey 35% of shoppers plan to buy electronics which is the company’s specialty. Moreover, 29% of shoppers plan to buy an item worth more than $500 in hopes of getting a better deal. Therefore, Q4 2023 is shaping up to be Newegg’s best in recent years.
PC Market Rebound Will Boost Sales
While the holiday season will definitely be a much-needed tailwind for NEGG stock in the short term, the anticipated rebound of the PC market in 2024 will be a major catalyst for the stock. The PC industry is traditionally cyclical due to the volatility of demand for PCs. As such, the industry constantly goes through peaks and troughs and is generally unstable.
Over the last 8 quarters, the PC industry has been hammered due to several reasons including Covid slowdowns, inflation, and rising interest rates which impacted consumer spending. At the same time, PC manufacturers were riding high amid the pandemic as consumers sought their products to work from home during lockdowns, which led them to increase production. However, as return-to-office policies started being implemented, PC manufacturers were left with excess inventory, while consumers found it hard to find the cash for new PCs due to high prices and financing costs.
According to Gartner, worldwide PC shipments totaled 259.4 million in 2018, down 1.3% from 2017. The effects were still being felt in 2019, adding pressure to the global PC market as demand for PCs declined by 5% in the first half of 2019. However, PC shipments increased 0.6% in the second half of 2019, surpassing 261 million units. Then the pandemic hit, and work-from-home policies led PC shipments to further increase by 4.8% in 2020 and surged another 9% in 2021. But this trend came to an end in 2022 as PC shipments plummeted 28.5% YoY, the largest YoY decline since Gartner began tracking shipments.
Given that Newegg specializes in PC hardware, its performance matched the broader PC market. Its revenues increased from $1.5 billion in 2019 to $2.1 billion in 2020 and peaked at $2.3 billion in 2021 when demand for PCs was at its highest. However, with the steep decline in the PC market in 2022, the company’s revenues declined to $1.7 billion in 2022 and is on track to further decline this year as management expects full-year revenue to amount to $1.52 billion to $1.58 billion.
Despite that, there is a reason to be optimistic as the PC market appears to be stabilizing as inventory levels fall and more consumers seek out newer PCs. In fact, Gartner analysts suggest that the worst may be over by the end of 2023. This is mainly due to the business PC market preparing for the next replacement cycle fueled by Windows 11 upgrades. At the same time, PCs bought during the pandemic are entering the initial phase of a refresh cycle which should allow consumer PC demand to recover in 2024. These factors have led Gartner to forecast PC shipments to grow 4.9% YoY in 2024, allowing PC-related companies to rebound as well like Newegg.
Valuation & Price Target
As we’re heading into 2 major catalysts for retailers and PC-related companies, NEGG stock may be well-positioned to run from current levels as it appears to be undervalued based on a number of valuation metrics. Using the lower end of the company’s revenue guidance of $1.52 billion, NEGG stock is trading at 0.19 times its expected sales. This is extremely undervalued compared to the sector median of 0.79.
However, to reach a fair price target for the stock, using its forward EV/Sales could be a better indicator since it considers NEGG’s debt and cash. Using this ratio also shows the stock to be undervalued with a forward EV/Sales of 0.18, much less than the sector median of 1.1. As such, a fair price target for NEGG stock could be $4.72, implying a 517.4% upside from current levels.
Risks
Although NEGG stock could be a bargain at current levels, there are risks that investors should consider first before investing in the stock. The first risk is the heated competition in the e-commerce sector from upstart platforms and large retailers like Amazon. This competition could lead to price wars that would hinder NEGG’s ability to grow, especially since it is operating at poor margins.
Another risk to consider is that the stock is non-compliant with the NASDAQ $1 minimum bid price requirement as it recently received a notice from the exchange providing it until May 6th, 2024 to regain compliance. While the company’s recently announced $10 million share buyback program could help it regain compliance, it is still not guaranteed, and the company could have to resort to effecting a reverse split to maintain its NASDAQ listing.
Technical Analysis
On the hourly chart, NEGG stock is in a neutral trend as it is trading in a sideways channel between $.54 and $.75. Looking at the indicators, the stock is above the 200, 50, and 21 MAs which is a bullish sign, confirmed by the bullish MACD. While the RSI is neutral at 64, the stock is gaining momentum and profit taking may occur.
As for the fundamentals, 2 catalysts will impact NEGG stock which are the holiday season and the anticipated rebound of the PC market in 2024. Given that the stock could be undervalued based on some valuation metrics, it could be a bargain ahead of both catalysts. With that in mind, investors looking to enter a long position in NEGG stock could wait for a pullback near $.75 – $.78 as it might be a good level to accumulate shares.
NEGG Forecast
With the holiday season underway, NEGG stock may be poised to rebound from the lows it reached recently due to the anticipated seasonal revenue boost. However, the anticipated rebound of the PC market could have a major impact on the stock since its sales are correlated with PC demand. As is, the PC market is very likely to stabilize next year as inventory levels fall and more consumers seek out newer PCs as part of the refresh cycle. Given that NEGG stock is likely undervalued based on its forward P/S and EV/Sales ratios, it could be a bargain for investors bullish on the PC market’s outlook, especially with its $4.72 price target.
NEGG Fundamentals
Seasonal Boost
Q4 has always been Newegg’s best in terms of revenue. Over the last 3 years, we can see that the most revenue it reports is in Q4. As such, NEGG stock may run over the coming weeks as we are in holiday season.
Quarters 2022 2021 2020
Q1 $445,270,000 $603,436,000 $431,350,000
Q2 $445,270,000 $603,436,000 $431,350,000
Q3 $349,158,000 $540,898,000 $554,023,000
Q4 $480,575,000 $628,455,000 $698,149,000
Looking to boost sales in this season, the company recently unveiled its November sales plans including Black Friday-related deals all month to help shoppers get a head start on holiday shopping. After all, 39% of shoppers plan to start their holiday shopping in November, per a recent Shopify-Gallup survey.
With that in mind, this holiday season has the potential to be the best in many years as the same survey found that 74% of shoppers expect their holiday gift budget to remain the same or increase compared to last year. As is, a September report from Deloitte forecasts retail sales to grow between 3.5% and 4.6% YoY, driving holiday sales to between $1.54 trillion and $1.56 trillion between November 2023 and January 2024.
This bodes well for Newegg since according to the Shopify-Gallup survey 35% of shoppers plan to buy electronics which is the company’s specialty. Moreover, 29% of shoppers plan to buy an item worth more than $500 in hopes of getting a better deal. Therefore, Q4 2023 is shaping up to be Newegg’s best in recent years.
PC Market Rebound Will Boost Sales
While the holiday season will definitely be a much-needed tailwind for NEGG stock in the short term, the anticipated rebound of the PC market in 2024 will be a major catalyst for the stock. The PC industry is traditionally cyclical due to the volatility of demand for PCs. As such, the industry constantly goes through peaks and troughs and is generally unstable.
Over the last 8 quarters, the PC industry has been hammered due to several reasons including Covid slowdowns, inflation, and rising interest rates which impacted consumer spending. At the same time, PC manufacturers were riding high amid the pandemic as consumers sought their products to work from home during lockdowns, which led them to increase production. However, as return-to-office policies started being implemented, PC manufacturers were left with excess inventory, while consumers found it hard to find the cash for new PCs due to high prices and financing costs.
According to Gartner, worldwide PC shipments totaled 259.4 million in 2018, down 1.3% from 2017. The effects were still being felt in 2019, adding pressure to the global PC market as demand for PCs declined by 5% in the first half of 2019. However, PC shipments increased 0.6% in the second half of 2019, surpassing 261 million units. Then the pandemic hit, and work-from-home policies led PC shipments to further increase by 4.8% in 2020 and surged another 9% in 2021. But this trend came to an end in 2022 as PC shipments plummeted 28.5% YoY, the largest YoY decline since Gartner began tracking shipments.
Given that Newegg specializes in PC hardware, its performance matched the broader PC market. Its revenues increased from $1.5 billion in 2019 to $2.1 billion in 2020 and peaked at $2.3 billion in 2021 when demand for PCs was at its highest. However, with the steep decline in the PC market in 2022, the company’s revenues declined to $1.7 billion in 2022 and is on track to further decline this year as management expects full-year revenue to amount to $1.52 billion to $1.58 billion.
Despite that, there is a reason to be optimistic as the PC market appears to be stabilizing as inventory levels fall and more consumers seek out newer PCs. In fact, Gartner analysts suggest that the worst may be over by the end of 2023. This is mainly due to the business PC market preparing for the next replacement cycle fueled by Windows 11 upgrades. At the same time, PCs bought during the pandemic are entering the initial phase of a refresh cycle which should allow consumer PC demand to recover in 2024. These factors have led Gartner to forecast PC shipments to grow 4.9% YoY in 2024, allowing PC-related companies to rebound as well like Newegg.
Valuation & Price Target
As we’re heading into 2 major catalysts for retailers and PC-related companies, NEGG stock may be well-positioned to run from current levels as it appears to be undervalued based on a number of valuation metrics. Using the lower end of the company’s revenue guidance of $1.52 billion, NEGG stock is trading at 0.19 times its expected sales. This is extremely undervalued compared to the sector median of 0.79.
However, to reach a fair price target for the stock, using its forward EV/Sales could be a better indicator since it considers NEGG’s debt and cash. Using this ratio also shows the stock to be undervalued with a forward EV/Sales of 0.18, much less than the sector median of 1.1. As such, a fair price target for NEGG stock could be $4.72, implying a 517.4% upside from current levels.
Risks
Although NEGG stock could be a bargain at current levels, there are risks that investors should consider first before investing in the stock. The first risk is the heated competition in the e-commerce sector from upstart platforms and large retailers like Amazon. This competition could lead to price wars that would hinder NEGG’s ability to grow, especially since it is operating at poor margins.
Another risk to consider is that the stock is non-compliant with the NASDAQ $1 minimum bid price requirement as it recently received a notice from the exchange providing it until May 6th, 2024 to regain compliance. While the company’s recently announced $10 million share buyback program could help it regain compliance, it is still not guaranteed, and the company could have to resort to effecting a reverse split to maintain its NASDAQ listing.
Technical Analysis
On the hourly chart, NEGG stock is in a neutral trend as it is trading in a sideways channel between $.54 and $.75. Looking at the indicators, the stock is above the 200, 50, and 21 MAs which is a bullish sign, confirmed by the bullish MACD. While the RSI is neutral at 64, the stock is gaining momentum and profit taking may occur.
As for the fundamentals, 2 catalysts will impact NEGG stock which are the holiday season and the anticipated rebound of the PC market in 2024. Given that the stock could be undervalued based on some valuation metrics, it could be a bargain ahead of both catalysts. With that in mind, investors looking to enter a long position in NEGG stock could wait for a pullback near $.75 – $.78 as it might be a good level to accumulate shares.
NEGG Forecast
With the holiday season underway, NEGG stock may be poised to rebound from the lows it reached recently due to the anticipated seasonal revenue boost. However, the anticipated rebound of the PC market could have a major impact on the stock since its sales are correlated with PC demand. As is, the PC market is very likely to stabilize next year as inventory levels fall and more consumers seek out newer PCs as part of the refresh cycle. Given that NEGG stock is likely undervalued based on its forward P/S and EV/Sales ratios, it could be a bargain for investors bullish on the PC market’s outlook, especially with its $4.72 price target.
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