Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.
What are we looking for?
This week Chinese e-commerce company Alibaba Group Holding Inc. could set a record for the world's biggest initial public offering at more than $22-billion (U.S.). My colleague Rob Belanger thought we would take a look at the current slate of e-commerce companies trading around the world.
The screen
Our companies had to be larger than $300-million in market capitalization and we sorted them from the largest to the smallest.
The EV/EBITDA (enterprise value divided by the earnings before interest, taxes, depreciation and amortization) is a value ratio that looks at a firm the way a potential acquirer would because it includes debt. A low number is preferred.
The price to cash flow (P/CF) is an indicator of a stock's valuation and a low number may indicate the company is undervalued.
We are also showing the past year's revenue, and one-year sales growth, which had to be positive.
Price to sales is another indicator of value and a ratio higher than the average may indicate an overvalued company.
Operating margin (OM) is a measurement of what portion of a company's revenue is left over after paying for variable costs such as wages and inventory. If a company has an operating margin of 12 per cent it means that it makes 12 cents before interest and taxes for every dollar of sales. Our companies had to have positive OM.
What did we find?
Two companies stand out among the rest and outperformed the averages in four of the five categories. In the United States, Liquidity Services Inc. provides businesses and governments with a transparent, innovative and effective online marketplace for surplus assets. On the international front, Pchome Online Inc. is Taiwan's largest online shopping site.
It is interesting to note that Amazon.com Inc. brought in revenue of $72.6-billion in the past 12 months compared to Alibaba's $981-billion.
Netflix Inc. had the second-highest one-year sales growth of more than 25 per cent, but had one of the worst EV/EBITDA, and the worst P/CF.
Contact an investment professional or conduct further research before buying any of the companies listed here.