3 Reasons We're Fans of Sea (SE)

Shareholders of Sea would probably like to forget the past six months even happened. The stock dropped 20.3% and now trades at $127.54. This might have investors contemplating their next move.

Following the drawdown, is now an opportune time to buy SE? Find out in our full research report, it’s free for active Edge members.

Why Is Sea a Good Business?

Founded in 2009 and a publicly traded company since 2017, Sea (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.

1. Paying Users Skyrocket, Fueling Growth Opportunities

As an online marketplace, Sea generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, Sea’s paying users, a key performance metric for the company, increased by 21.9% annually to 65.9 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sea’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.

3. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Sea’s margin expanded by 36.3 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Sea’s free cash flow margin for the trailing 12 months was 21.3%.

Final Judgment

These are just a few reasons why we think Sea is a great business. After the recent drawdown, the stock trades at 19.5× forward EV/EBITDA (or $127.54 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

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