IBD 50 Stocks To Watch: Sea, Owned By Cathie Wood’s ARK Funds, Near A Buy Point

Mobile gaming and e-commerce platform Sea Limited (SE), featured in today’s IBD 50 Stocks To Watch, is close to a buy point as revenue explodes.


Based in Singapore, Sea says it has both the largest digital entertainment platform and the largest e-commerce operation in the Southeast Asia region, comprised of Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia and Singapore. Its market reach extends to Latin America.

Sea held an initial public offering in October 2017 that raised $884 million, which was $238 million more than initially expected. The IPO priced at 15, above its estimated range. Sea stock is up more than 400% in the past 12 months.

Tencent Holdings (TCEHY), one of China’s largest internet companies, is a principal shareholder. A key competitor is China e-commerce giant Alibaba Group (BABA).

Cathie Woods Likes Sea, Too

Sea stock is owned in several ARK Invest funds run by highly regarded manager Cathie Wood: ARK Innovation ETF (ARKK), ARK Next Generation Internet (ARKW) and ARK Fintech Innovation (ARKF).

(David Ryan, a protege of IBD founder William O’Neil, discussed SE stock on IBD Live Tuesday. You can find that day’s video in the IBD Live archive.)

IBD Stock Checkup assigns Sea a 77 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That puts it in the top quartile of the 66-stock internet content group, which includes Facebook (FB) and Google parent Alphabet (GOOGL).

A 14 Earnings Per Share Rating, part of the overall composite score, is low, which helps explain the unimpressive Composite Rating. Sea hasn’t yet turned an annual profit. But it boasts a solid revenue track record, with a five-year compound sales growth rate of 85%. Analysts expect sales to jump 90% this year and 49% the next.

In May, Sea reported Q1 GAAP revenue that soared 147% year over year, thanks to strong performance across its businesses. Digital entertainment bookings in its Garena unit rose 117% to $1.1 billion. Quarterly active users increased 61% to 648.8 million, while paying users jumped 124% to 79.8 million.

Sea’s Shopee e-commerce unit reported 1.1 billion gross orders, up 153% year over year. GAAP revenue surged 250% to $922.3 million.

Stocks To Watch: Sea Eyes Buy Point

The stock’s technical scores are better. Its 92 Relative Strength Rating puts Sea in the top 8% of all stocks. Its relative strength line, which compares a stock’s performance to the S&P 500, is close to all-time highs. That’s a bullish sign.

On a weekly chart, the stock is about 3% below a 285.10 buy point of an undefined consolidation, according to MarketSmith chart analysis. It climbed past the entry last week and this week, but hasn’t closed above it.

But on a daily chart, Sea offers an earlier entry of 278.10 from a six-week cup base. It cleared the buy point last week and is now near the entry.

A caveat: The current base (daily and weekly) is fourth stage, which increases risk of failure. Stocks tend to make their biggest advance out of earlier stage bases.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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