Is Newegg (NEGG) Stock a Buy

Economic

Summary:

Dive into our comprehensive Newegg (NEGG) stock review. Explore financial health, market position, and future prospects of this tech e-retailer. Essential reading for investors considering NEGG amidst market volatility and e-commerce competition.

Newegg Commerce Inc, a leading tech-focused e-retailer in North America, has been a subject of interest for many investors. This comprehensive review will analyze the company's stock performance, financial health, market position, and future outlook to provide a clear picture for potential investors.

Company Overview

Newegg Commerce Inc is an e-commerce company that specializes in selling computer hardware, consumer electronics, and related products. Founded in 2001, the company has grown to become one of the largest online retailers of computer components and consumer electronics in North America. Newegg went public through a merger with a special purpose acquisition company (SPAC) in May 2021.

Stock Performance

Newegg's stock (NASDAQ: NEGG) has experienced significant volatility since its public debut. As of July 2024, the stock price stands at $0.90, down considerably from its all-time high of $79.07 reached in July 2021. This dramatic decline reflects both market-wide trends and company-specific challenges.

Over the past year, NEGG has underperformed the broader market significantly:

1-Year Return: -21.99% (compared to S&P 500's +24.27%)

5-Year Return: -88.53% (compared to S&P 500's +85.16%)

Since IPO: -93% (compared to S&P 500's +33%)

These figures highlight the stock's struggle to maintain value in a competitive e-commerce landscape.

Financial Health

Examining Newegg's financial ratios provides insight into the company's current financial state:

Price to Book (P/B) Ratio: 6.06

Price to Sales (P/S) Ratio: 0.21

Price to Cash Flow (P/CF) Ratio: 1.50

The low P/S ratio suggests that the stock may be undervalued relative to its sales, potentially indicating an opportunity for value investors. However, the higher P/B ratio could imply that the stock is overvalued compared to its book value.

Newegg's debt-to-equity ratio stands at 69.99%, which is relatively high and may indicate increased financial risk. The company's levered free cash flow (ttm) is negative at -$16.82 million, suggesting challenges in generating positive cash flow after accounting for capital expenditures and debt obligations.

Market Position and Competition

Newegg operates in the highly competitive e-commerce sector, facing stiff competition from giants like Amazon, Best Buy, and other specialized electronics retailers. The company's focus on tech products and components has helped it carve out a niche, but maintaining market share remains a significant challenge.

Future Outlook

Despite the current stock performance, Newegg has potential growth avenues:

Expansion of product lines: Newegg has been diversifying its offerings beyond computer components, which could open up new revenue streams.

International growth: The company has been expanding its presence in global markets, which could drive future growth.

Focus on high-margin products: Newegg's emphasis on PC components and gaming products, which often have higher profit margins, could improve profitability.

However, the company faces several challenges:

Intense competition: The e-commerce space continues to be highly competitive, with larger players having significant advantages in scale and resources.

Economic uncertainty: Consumer spending on electronics can be sensitive to economic conditions, which remain uncertain.

Supply chain issues: Ongoing global supply chain disruptions could impact product availability and costs.

Investor Considerations

For potential investors considering NEGG, several factors warrant attention:

High volatility: NEGG has shown significant price swings, making it a potentially risky investment.

Lack of dividends: Newegg does not currently pay dividends, which may deter income-focused investors.

Growth potential: Despite current challenges, Newegg's established position in the tech e-commerce space could provide growth opportunities if the company successfully navigates market challenges.

Financial health concerns: The negative free cash flow and high debt-to-equity ratio suggest potential financial risks that investors should carefully consider.

Conclusion

Newegg Commerce Inc (NEGG) presents a mixed picture for investors. While the company has an established presence in the tech e-commerce sector and potential for growth, its stock performance has been disappointing, and financial health indicators raise some concerns. The stock may appeal to risk-tolerant investors who believe in the company's long-term potential, but it's crucial to approach any investment decision with caution and thorough research.

As with any investment, potential investors should conduct their own due diligence, consider their risk tolerance, and possibly consult with a financial advisor before making investment decisions regarding NEGG or any other stock.

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Alex

Economic

The rise and rise of private markets has a feeling of inexorability about it. Despite increased financing costs and an uncertain growth outlook, private market assets under management totalled $13.1tn on June 30 last year, having grown at nearly 20 per cent a year since 2018, according to consultants McKinsey.

While fundraising has declined from its 2021 peak, a recent survey by State Street found that a majority of institutional investors intended to increase their exposure to almost all private markets, including infrastructure, private debt, private equity and real estate.

Yet the boom in private markets since the 2007-2009 financial crisis, especially in the big buyout category, was built on ultra-loose monetary policy. Most of the returns came not from enhancing the efficiency of portfolio companies, but from selling assets at ever-increasing market multiples and through leverage, which increases the return on equity relative to the return on assets.

Today multiples are down, financing costs are up and balance sheets are weaker thanks to that leverage. Payouts to investors are low as managers are reluctant to sell assets and crystallise returns while multiples are depressed. As for private debt, its growth has been substantially driven by regulatory arbitrage, with banks facing tougher regulation since the financial crisis.

Governance shortcomings in private equity, overlooked in the cheap money bonanza, now look pressing as institutional investors query the values private equity managers put on portfolio companies. The valuation issue has been acute since the return of more normal interest rates. Private equity managers have tended to write down their assets’ value by far less than the falls in public markets. This is a nonsense given the higher leverage and illiquidity of the asset category. The writedowns should be far greater than for public equity.

Also of concern is last month’s decision of the US Fifth Circuit Court of Appeals to throw out the Securities and Exchange Commission’s new rules imposing greater transparency on performance and fees in private equity. There is no uniformity in disclosure, which is based on individual agreements between managers and their investors. Much controversy surrounds the calculation of internal rates of return and opaque backdoor fees that investors often unwittingly pay.

The SEC had also been worried about a lack of clearly defined valuation procedures and protocols for mitigating the industry’s innumerable conflicts of interest. These include a rash of continuation funds whereby managers sell portfolio companies to a new fund. This shelters them from valuations in the public markets. Such deals entail big increases in the buyout group’s fees.

Exposure to illiquid assets is leading to growing problems of portfolio balance for pension funds approaching the so-called endgame, where they transfer pension obligations and matching assets to insurers via buyouts or buy-ins. Insurers do not like taking on illiquid assets, and if they do accept them, they impose tough haircuts.

That said, the rise of private markets has been good for investors. They offer diversification benefits, subject to the endgame caveat above. There are huge opportunities in infrastructure arising from decarbonisation and digitisation. And venture capital provides an entrée into new technologies.

Less clear, given the huge sums pouring into private capital, is how much of an illiquidity premium remains to be harvested. Dry powder reserves, the amounts committed by investors but not yet deployed, stand at $3.7tn, a ninth consecutive year of growth.

Assessing the performance of private equity relative to public markets is difficult. Real returns can only be known when investments are finally realised. In the interim, everything rests on the managers’ valuations. Jeffrey Hooke of Johns Hopkins Carey Business School argues that private equity managers have cloaked middling investment returns in a mass of confidentiality and misinformation. They have, he says, taken a simple concept — borrowing money to increase equity returns — and shaped it into a massive commercial empire with little accountability.

The biggest question relates to costs. Private equity typically charges a 2 per cent annual management fee based on investors’ money committed to the fund, along with a 20 per cent share of the profits over a pre-agreed returns threshold of, typically, 8 per cent. This is a huge drag on performance relative to the fractional percentage costs of investing in passively managed quoted equity.

The days of easy windfalls from freakishly loose monetary policy are gone. Now, private capital is much more hazardous terrain for investors.

Source:Financial Times

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Samantha Luan

Economic

China’s ruling Communist Party started a four-day meeting Monday that is expected to lay out a strategy for self-sufficient economic growth in an era of heightened national security concerns and restrictions on access to American technology.

While the meeting typically focuses on such long-term issues, business owners and investors will also be watching to see if the party announces any immediate measures to try to counter a prolonged real estate downturn and persistent malaise that has suppressed China’s post-COVID-19 recovery.

“There’s a lot of unclarity of policy direction in China,” which is weighing on consumer and investor confidence, said Bert Hofman, the former World Bank country director for China and a professor at the National University of Singapore. “This is a point in time where China needs to show its cards.”

Economic growth slowed to 4.7% on an annual basis in the April to June quarter, the government reported Monday.

Chinese leader Xi Jinping addressed the closed-door meeting on Monday, expounding on a draft of its coming decision on “deepening reform and advancing Chinese modernization,” the official Xinhua News Agency said.

Security was tightened in central Beijing, as it generally is for major government events, with uniformed guards posted in some subway stations and neighborhood-watch people wearing red armbands stationed in public areas.

The decision will send a message to local government officials and others about the future direction of policy. The general expectation is that it will confirm a path laid out by Chinese leader Xi Jinping, though some hope for some fine-tuning to address concerns that increasing government control over business and society is stifling economic growth.

What is the “third plenum” and why does it matter?

The Communist Party’s 205-member Central Committee is holding its third plenum, or the third plenary session of a five-year term that started in 2022. This year’s meeting was expected to be held last year, but was delayed.

Historically, this third meeting has emerged as one at which major economic and policy decisions have been set, though not every time. Analysts say the plenum often sets longer-term directions impacting the economy.

1. In 1978, the meeting endorsed the “reform and opening up” of former leader Deng Xiaoping, the transformation from a planned economy to a more market-based economy that propelled China’s growth in the ensuing decades.

2. In 1993, it endorsed a “socialist market economy” that sealed the victory of reformers battling against conservatives warning about the dangers of economic liberalization.

3. In 2013, in another endorsement of reform, it said that the market would become the decisive force in the allocation of resources.

The last pronouncement, made a year after Xi became leader, didn’t come to be. Within a couple of years, the party began backtracking before setting off in a new direction in 2017, Hofman said.

What issues are at stake?

Under Xi, the Communist Party has decided that the party needs to be at the center of efforts to take China to the next level of development. China is the world’s second-largest economy, but with a population of 1.4 billion people, it is also still a middle-income country.

The government has reined in China’s high-flying tech giants, such as Alibaba, the fintech and e-commerce giant. As the United States became more adversarial, Xi pushed Chinese companies and universities to try to develop the high-end semiconductors and other technology that is being blocked by U.S. restrictions on exports to China.

Free-market advocates are concerned this government-led approach is discouraging the entrepreneurial spirit. Another worry is that the rising importance of national security will take a toll on economic growth. The government has investigated companies that transferred economic data overseas in what appears to be a widening definition of what constitutes a breach of the law.

A major change in direction is not expected and would be momentous if it were to happen. Instead, the degree to which the meeting acknowledges concerns about the business environment and national security could signal whether there will be some policy adjustments.

What policy shifts might happen?

Further support for high-tech industries that are considered vital for national security and future growth is all but certain, along with related industrial policies.

But the party faces demands on other fronts. Alexander Davey, an analyst at the Mercator Institute for China Studies in Germany, said they are watching how the government will balance two major prerogatives: economic growth and social equity.

Local governments are heavily in debt, with multiple cities suspending transit services because they could not afford to keep running them. In February last year, the city of Shangqiu, home to more than 7 million people, temporarily shut down bus lines.

“There may be a bit of a shift, does the central government issue more debt to local government so they can run their services?” Davey said. The trade off will be between vast resources poured into science and tech development, areas deemed vital to national security, and social services.

Investors will be on the lookout for indications that the government, having increased its control over the economy, will take any steps to create a more favorable environment for private companies.

Then, there is the real estate market. In April, the government announced policies that signaled a shift in its approach by funding direct purchases of unsold homes.

“A notable first-half shift in China’s property stance,” said Yifan Hu, chief investment officer for greater China at UBS bank, in a statement. “This ongoing pressure underscores the need for additional easing, which we think will be forthcoming given the supportive policy tone.”

Source：AP News

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Samantha Luan

Economic

Cryptocurrency

A local news publication in South Korea recently reported that the current ruling government is considering postponing the implementation of crypto tax for an additional three years. Thus, instead of January 2025, the Korean government won’t tax crypto capital gains further until January 2028.

Crypto Tax Relief to South Korean Investors Likely

Crypto taxation has been a matter of strong discussion in South Korea, originally started in 2021, after passing the related tax law in the National Assembly during the Moon Jae-in administration. Later, they further postponed the decision to 2023 considering the presidential election in the following year, and further to January 2025 under the Yoon Seok-yeol administration.

Some have criticized that the public opinion of the taxpayers largely influences the crypto tax policy in South Korea. In May 2024, the Financial Services Commission (FSC) presented data showing that the total number of crypto investors in South Korea has shot up by 6.45 million.

With the falling Bitcoin price and strong correction in the broader crypto market, there’s growing dissatisfaction on issues related to crypto taxes currently in South Korea. One of the market insiders told Hankyung publication:

“The daily cryptocurrency trading volume on domestic exchanges, which was in the 20 trillion won range in March, has recently plummeted to the 2 trillion won range. If the cryptocurrency income tax is imposed early next year, most investors will leave, further reducing trading.”

Income Tax Postponement Gains Momentum

Interestingly, the scheduled investment of financial investment income tax is also facing delays in South Korea. Despite the government’s announcement to abolish the tax, former Democratic Party of Korea leader Lee Jae-myung stated on the 10th of this month that “we need to think more about the timing of implementation.”

Now, if the crypto tax proceeds while there are delays in the financial investment tax, investors might feel disadvantaged. Critics argue that full-scale taxation of cryptocurrencies is impractical due to insufficient system and institutional preparation. One of the government officials said: “Secondary legislation is needed to classify cryptocurrencies and specify the types of business within the industry in detail so that taxes can be levied without difficulty. The institutional arrangements are not yet sufficient.”

However, some of the opposition leaders have countered saying that the lack of preparation from the government shows that they didn’t do what was necessary to implement crypto taxes. Also, they added that public opinion is getting too much importance in implementing crypto tax rules.

Source：Coingape

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Warren Takunda

Economic

The New Zealand Dollar is under pressure at the start of the new week following another domestic data set that will bolster the odds of a Reserve Bank of New Zealand interest rate cut before the year ends.

Kiwi house prices declined markedly in June, according to REINZ house sales. The house price index printed -0.1% month-on-month, bringing the annual figure down to +1.3% y/y from 2.3% previously.

This was after house sales fell 16.7% m/m in June, taking the annual change in turnover down to -25.6% from a positive 6.8% previously.

"Slow momentum in the housing market since last year's election, combined with the RBNZ’s 'tough love' message of keeping interest rates high for longer were the key factors," says Michael Gordon, Senior Economist at Westpac.

These housing data are the latest to make the case for an interest rate cut at the RBNZ, which is weighing on the NZ Dollar more broadly.

Last week the RBNZ performed what analysts described as a 'pivot' by signalling it now sees an interest rate cut as appropriate in the coming months. It said it expects "headline inflation to return to within the 1 to 3 per cent target range in the second half of this year."

It added that restrictive monetary policy (i.e. elevated interest rates) "will be tempered over time consistent with the expected decline in inflation pressures."

NZD weakness and broader GBP outperformance is clearly visible in a rallying GBP/NZD exchange rate, which last week recorded its strongest one-week gain since May of 2023. Gains extend into the new week and the pair is now quoted at 2.1295.

Momentum indicators are now suggesting some caution is warranted as the RSI is at 77.80, which is excessively overbought. In fact this is the most overbought the RSI has been in years.

Pound to New Zealand Dollar Week Ahead Forecast: Heavily Overbought into UK Data Risk_1

Above: GBP/NZD at daily intervals with the RSI in the lower panel.

We suggest a pullback is now warranted, although weakness is anticipated to be shallow. In the bigger picture, the pair trades above its key moving averages, and we see no incentive to stand in the way of the trend.

Following any near-term pullbacks, the next upside target is the 2023 peak at 2.1587, which can be attained in the coming two to four weeks. Near-term risks to GBP are relatively elevated as we have the release of inflation numbers on Wednesday, followed by wages on Thursday.

"We are still holding on to our call for an August rate cut, but another upside surprise for services inflation and/or wages would challenge our view and encourage a further strengthening of the GBP in the week ahead," says Lee Hardman, an analyst at MUFG Bank Ltd.

However, any undershoot against expectations can bolster the odds of an August 01 interest rate cut at the Bank of England and see GBP/NZD give back recent gains.

Services inflation is expected to read at 5.6% and headline CPI inflation is forecast to read at 2.0%. Any undershoot would raise the odds of an August 01 rate cut and send an overbought Pound-Euro sharply lower.

Analysts at Oxford Economics reckon the headline CPI inflation print will land at 1.8%, an outcome that would represent a decent undershoot and prompt a selloff in the Pound.

"Considering the GBP has been the best performing G-10 currency QTD, we think it remains prone to a larger correction if CPI print comes in lower than expectations," says Daragh Maher, Head of FX Strategy at HSBC.

The sell-off in the Pound would be limited because the Bank of England will find it difficult to cut aggressively if the economy continues to perform robustly, something a number of economists said was likely following last week's GDP release.

Regarding the wage numbers on Thursday, the expectation is for average weekly earnings to have increased 5.8% over the year to June. Anything below here would result in GBP selling.

Source: Poundsterlinglive

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JPMorgan

Economic

2024 started on a high note, with risk assets surging despite interest rate expectations evolving to reflect hotter-than-expected economic data. Second quarter moves were slightly different in nature: U.S. names largely outperformed the rest of world, bonds did little as rate expectations crystalized, gold continued to rally and digital assets took a dive.

What was behind these market moves? To understand them, it is important to unpack some of the things that helped to define the second quarter of 2024.

Economic data softened:U.S. GDP growth slowed much more than expected, to 1.4% annualized in 1Q. While this disappointment was driven by inventory and trade figures, consumption data also missed expectations. So far, 2Q consumption is shaping up similarly: weaker-than-expected retail sales in May (+0.1%) and April (-0.2%) have put a damper on growth expectations. Meanwhile, core inflation continued to ease, falling from 3.8% in March to 3.3% in June, and the unemployment rate ticked higher, with the June read marking the first print above 4.0% in 30 months. Outside of the U.S., most major developed market PMIs softened, though improvements are expected, and inflation is now at or around target in both Europe and Japan.

Central banks started easing, but not the Fed: While the Bank of Japan cautiously eyes another potential rate hike, the broader developed market easing cycle is now officially underway: the Bank of Canada and the European Central Bank both elected to lower policy rates by 25 bps, and the Bank of England signaled a willingness to follow suit. Meanwhile, the Federal Reserve published its second quarter Summary of Economic projections, including the “Dot Plot”; policy makers expect one interest rate cut this year, down from the three telegraphed at the March meeting. Speculative assets, like Bitcoin, struggled with this “higher-for-longer” narrative.

Global equity market performance narrowed: Against this macro backdrop, equity market gains were more concentrated, both within the U.S. and globally. Domestically, Small Cap and Value stocks lost their luster as investors flocked to Growth and Large Cap names, with the S&P 500 driven to multiple all-time-highs on robust first-quarter earnings from mega-cap tech companies. Internationally, emerging markets outperformed developed ones due to improving Chinese fundamentals and strong earnings in Taiwan and India. Conversely, French elections and a weakening Yen weighed on European and Japanese equities, respectively. In addition, lingering geopolitical anxiety helped to bolster gold prices.

All told, the second quarter was a busy one, as was to be expected given the stage that was set in the first quarter. Looking to the back half of the year and beyond, lingering geopolitical uncertainty and an upcoming U.S. presidential election, coupled with the divergence in performance across assets, underscores the importance of diversification in a fundamentally uncertain world.

The Quarter In Review: What Happened In 2Q 2024?_1

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Alex

Economic

Goldman Sachs GS.N aims to raise $2 billion in its first Asia Pacific-focused private equity fund, two people with knowledge of the bank's fundraising plan said, as it looks to deepen exposure to some of the world's fastest-growing economies.

The fund-raising effort comes as private equity firms in Asia reshape investment strategies and country allocations amid geopolitical tension, a higher interest rate environment, market volatility, and macroeconomic headwinds.

Goldman Sachs Asset Management, the bank's investment arm, has been marketing the new fund to sovereign wealth funds, pension funds and private investors, setting its sights on a first close by the fourth quarter, the sources said.

The fund, whose target size is being reported for the first time, will focus primarily on investment opportunities in Japan, with about half its capital expected to be allocated to there, one of the sources said.

India, South Korea, and Australia will also be key markets for the fund, the source said.

Both sources sought anonymity as they were not authorised to speak to the media.

A spokesperson for Goldman declined to comment.

In the first half of 2024, Asia-focused private equity fundraising was up 4% on the year at $52.7 billion, but still a far cry from the first-half average in the past decade of $131.7 billion, says industry data provider Preqin.

Global investors have been particularly cautious about deploying capital in China, deterred by its economic slowdown, regulatory crackdown and Sino-U.S. tension, which have all weighed on Asia fundraising by global private equity firms.

Only five China-focused private equity funds were raised in the first half this year, totalling $2.2 billion, Preqin data showed.

On the other hand, Japan has become a hot spot for private equity firms as a cheap yen currency, buoyant public market and policy drives to improve corporate governance make its stocks and assets more attractive.

Japan's benchmark Nikkei .N225 racked up its biggest absolute rise ever for the year ended March 29, after having hit record levels since February. It is up 23% this year.

Private equity-backed mergers and acquisitions in Japan stood at a record $35.5 billion in 2023, after their numbers rose steadily in the preceding decade, LSEG data showed.

Stephanie Hui, Goldman's head of Asia private equity and global co-head of growth equity, told an Australian paper in March the firm was looking to raise an Asia-focused vehicle, and planned to increase investments in Japan and India.

One of the sources told Reuters that Goldman, which manages more than $90 billion in private equity assets globally, including buyouts and growth investments, would also continue to look at opportunities in China.

The Wall Street bank's 18-strong Asia private equity team, led by Hong Kong-based Hui, has deployed $17 billion across 242 investments in the region, its website says.

In February Chief Executive David Solomon said Goldman would raise its ninth global private equity fund this year. The bank has been in the private equity business for more than 30 years.

Since Solomon took the reins in 2019, the bank has been reducing use of its own balance sheet in asset management, by tapping external capital for investments, aiming to boost earnings from fees.

Over the last five years, the bank has invested in more than 60 companies in Asia, such as Japan's Nippo Corp and Chinese software company Shenzhen Qianhai 4Paradigm Data Technology Co, Dealogic data showed.

Goldman was also among the earliest investors in China's e-commerce giant Alibaba Group in 1999, before it became the nation's major online shopping marketplace.