Thursday 7 September 2023

Is it Time to buy Sea Ltd after a 90% Plunge?

Contributed by: The Big Fat Whale

There has been lots of talk about Sea among investors, especially so, with the almost 90% plunge from its peak at around $350. At its peak with a valuation north of 200 billion US dollars in late 2021, SEA dwarfs the valuation of all 3 Singapore banks combined. 

It has been a tough journey for SEA, as their valuations have taken a hit of close to 90%. With such an attention-grabbing drop, it led to us examine if SEA's current valuation is worth a look at.  SEA was highlighted in our recently published book, where it came to our attention when it was just trading at $10, but it has been a rollercoaster ride since then.

There have been many reports on SEA where they went in-depth on their business model, so we will just highlight their 3 main business which is namely: Ecommerce-Shopee, Digital Entertainment- Gaming(Garena) and Digital Financial Services- Maribank, SeaMoney etc. We will be focusing more on their outlook given what we have read so far and based on our analysis of their financial ratios.


Sea Financials

Stock/Price P/EP/BPrice/CashFlowPrice/SalesDebt to EquityInterest CoverageCurrent RatioReturn on Investment

Looking at the financial ratios of SEA, it does not seem to be a real bargain from a value investing point of view. P/E of 86 and even the price to cash flow of 28 don't look like a bargain at this juncture. However, they could just be turning around as Shopee was bleeding in the initial stages but has since managed to churn out a profit on an EBITDA basis. Do note that they were on a huge cost-cutting exercise recently which could have led to the profits in the ecommerce division.

This gives us hope that the trend will persist and with the network effect of their platform, better profitability days are ahead. Sea has been profitable on a net income basis over the last 3 quarters.

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