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Bull of the Day: Sea Limited (SE)

Sea Limited (SE) is a Zacks Rank #1 (Strong Buy) that engages in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, rest of Asia, and internationally.

Like many high-flying stocks in 2021, the last year was one that investors want to forget. The stock made highs in October of that year at $372.70 and lows just over a year later at $40.67. This was a move of 89% lower.

But the stock is grinding back and is up 50% already this year. So the question for investors is if the stock has more left to this run higher.  

More about Sea Limited

The company incorporated in 2009 and is headquartered in Singapore. It employs over 67,000 and has a market cap of $44 billion.

Sea has three different segments that make up its business. Gardena has a focus on digital entertainment and is a leading online game developer. Shopee is an e-commerce platform that provides integrated payment and logistics infrastructure and seller services in Southeast Asia and Taiwan. SeaMoney offers digital financial services to individuals and businesses, including offline and online mobile wallet, and payment processing services.

The stock has a Zacks Style Score of “B” in Growth, but “F” in Value. The Forward PE is 26 and the stock pays no dividend.

Q2 Earnings

In early March, the company reported a big earnings beat that helped the stock shoot higher. The 266% EPS beat was the second in a row and the fourth out of the last five quarters.

Sea did not provide guidance, but its adjusted EBITDA came in at $495.7M v the -$249.8M expected. This was above the loss of $492.1M reported last year at this time. The company said commented that 2023 started on a much stronger footing and said “Weremain highly confident in the long-term growth potential of our markets and fully focused on capturing this opportunity.

Estimates Rising

Looking at estimates, we see a big turn in the numbers since earnings.

Over the last 30 days, the current years estimates have gone from -$0.13 to $2.96. Expectations for next year have surged higher as well. Over the last 30 days, estimates going up by 74%, from $2.16 to $3.76.

Since earnings, the stock has received a couple upgrades, with the biggest coming from JPMorgan. The firm went to Overweight and lifted targets to $95 from $75. These targets are about 25% above current trading levels.

The Technical Take

The stock will likely take years before it can get back to those all-time highs it saw back in 2021. Despite the big drop in value, the stock seems to be finding buyers since that big earnings beat.

For those not looking to chase, buying the dips at moving averages might be a good strategy. The current levels are as follows:

21-day Moving Average (MA): $70

50-day MA: $66.50

200-day MA: $65

For those that look at Fibonacci levels, the 61.8% retrace from August highs to November lows has been broken. Aggressive bulls can target the $126 level.

In Summary

The bulls in 2021 got way ahead of themselves and paid for it dearly. The valuation was just not realistic and the stock dropped almost 90%. But SE has doubled since as the bears undervalued the company.

The stock might trade in a sideways range for a bit as these bull and bear forces collide. But considering the earnings momentum and the bullish chart, investors will likely be rewarded buying any moderate dips.

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Zacks Investment Research