Sea Limited for sale for more and priced like a pre-pandemic bargain

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Limited Sea (NYSE:SE) has lost more than half its value over the past year. Many claim that SE stocks are still a strong sell because the current market climate is not very receptive to growing stocks.

I don’t think I need to be the one to tell you the basic principle buying low and selling high is what makes market participants successful. But the question remains: How do I know if the price is low or high? Buying low is not as easy as it sounds; many stocks lose large amounts of their value and never return them.

When it comes to SE stocks, I take a contrarian stance here, because I see the potential. I really think investors with the necessary gut fortitude could make massive profits in the long run.

SE Stocks Beat Its EPS Drought

Many of the company’s internal stakeholders and external analysts got ahead of themselves over the past two years by constantly overestimating potential earnings per share (EPS). Sea missed its EPS forecast for the eighth straight quarter, with operating costs not easing at the pace initially anticipated.

However, pulses increased last week as Singapore’s tech outlook beat its EPS estimate by 3 cents per share. Sea generated broad enterprise growth over 2021, with its e-commerce segment revenue growing by 89% and its digital financial services revenue increasing by 711%.

Additionally, Sea added 7% in digital entertainment bookings for the year, with paying users increasing by 6%. The company’s management provided optimistic guidance for 2022, citing potential revenue growth of 75.7% for the e-commerce segment and 155.4% for the digital finance segment.

I find comfort in the fact that Sea has hoarded cash while also reducing its capital structure. The company added $3.9 billion in cash to its balance sheet during 2021 and reduced its debt-to-equity ratio to 57.29%. That means equity investors now hold higher residual claims than they did last year.

Cathie Wood Adds Volume

Shares jump 15% shortly after the latest Securities and Exchange Commission (SEC) filing shows Cathie Wood’s Invest Ark added 146,000 SE shares to his portfolio. When asked about the play, Wood said:

“E-commerce penetration in Indonesia, which is its core market, is around 7%. It might reach 40%, 50% over the next five, six, seven years. They could double their market share at the very least, so this is a business that could easily grow tenfold. It’s definitely not in the current assessment.”

Investor support for Wood has certainly fluctuated lately due to the volatility of Ark’s returns. It should be understood that Ark is a thematic investment fund, which means its returns are platykurtic in the short term but will likely produce consistent returns and beat the index in the long term.

To my knowledge, Ark Invest believes that job vacancies will remain in the long term due to innovation, which further results in a deflationary environment. I am a firm believer in Ark’s strategy, instilling confidence in my bullish bet on SE given the exposure of the hefty investment fund.

Possible Entry Points for SE Stocks

SE stocks looked cheap before the pandemic. It has retraced and now only trades in 4.8x the sale65.2% discount relative to the normalized average. I’ve always found the price-to-sale ratio helpful, as it’s less susceptible to short-term volatility manipulation than most other price multiples. In this regard, it is clear that the market has not fully appreciated the company’s extraordinary top-line growth.

Finally, the value of the SE Stock’s relative strength index is 30.4 is near oversold territory, indicating the market has overreacted to its bearish features. I bet on average returns and thought this was a reasonable time to enter SE stocks before it was too late.

As of the date of publication, Steve Booyens does not hold any position (either directly or indirectly) in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.

Sea Limited’s Posts Have Been Sold and Priced Like Pre-Pandemic Bargain made its first appearance on InvestorPlace.