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Covid-19 lockdowns have given a massive boost to the e-commerce sector. This has, in turn, presented tremendous opportunities for UK share investors for the long term.
Take the recent performance of GB Group (LSE: GBG), for example. This UK share — which provides identity and address verification technology for e-retailers — has soared 50% in value over the last year as profits have ballooned. I expect this British stock to rise again over the long term too.
Buying UK e-commerce shares
There is a raft of research on consumer habits to back up my confidence too. Analysts at Enders Analysis say that the pandemic has hastened the growth of e-commerce (for goods) by four years. Online sales accounted for 28% of the total, versus 19% in 2019. And they reckon the share will remain broadly stable between 27% and 29% in 2021 too.
Offline retailing will grab some ground back from online retailers from the second quarter as Covid-19 lockdowns are unwound, Enders Analysis says.
But it adds: “These new shopping habits will be sticky and anchored by persistent work-from-home, driving all retailers that are left standing to massively adopt online channels and associated advertising media.”
There could be a fly in the ointment for UK e-commerce shares like GB Group however. The collapse of physical retail last year seems to have been a wake-up call for the UK government. And this could damage earnings growth for these sorts of companies in the years ahead.
The introduction of an online sales tax threatens to have the most seismic impact on internet shopping volumes looking ahead. However, other suggested measures like extending store opening hours has the capacity to damage e-retail too if they become the norm.
A great long-term buy?
GB Group’s earnings are predicted to suffer some near-term profits turbulence. City forecasters expect the UK e-commerce share’s profits to drop 7% in this fiscal period (to March 2022). The experts at Canaccord Genuity reckon the recent divestment of its marketing services unit, combined with the fact that US stimulus packages won’t be repeated in the forthcoming year, will hit annual profits this time around.
Still, I’m convinced the long-term outlook for GB Group is robust. The e-commerce industry is still ripe for strong growth, driven by technological improvements and rising investment by retailers, couriers and product manufacturers.
And this UK share has a wide global footprint — not to mention rising clout in fast-growing Asian countries — to make the most of this enormous opportunity. It’s why City analysts think GB Group will rebound 14% in financial 2023.
A word of warning though. At current prices, GB Group looks expensive on paper. It carries a forward price-to-earnings (P/E) ratio of around 50 times. This sort of rating suggests UK share investors are expecting strong earnings growth over the long term. It therefore also leaves GB Group in danger of a sharp share price correction if trading performance deteriorates for whatever reason.
The post This UK e-commerce share’s soared 50% in value! Here’s why I’d buy it for my ISA appeared first on The Motley Fool UK.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021