Consumer electronics eCommerce store Newegg (NASDAQ:NEGG) has staged a dramatic stock rally recently, with shares rising about 65% in the last month.
Once a go-to for buying electronics, both the company and its stock have struggled in recent years. Why is Newegg suddenly up so much, and could this rally signal that a more sustained recovery could be underway for Newegg?
Although Newegg’s spike over the last month has been very impressive, it’s important to provide some context for it. Despite rising by such a large margin in a month, NEGG is still down over 20% on a 3-month basis and almost 65% on a 12-month basis.
At its 52-week high of $26.40, shares of Newegg were trading at about four times their current price. So, although Newegg has gotten a significant short-term boost, it’s far from a full recovery.
Why Is Newegg Commerce Up So Much?
Newegg share price is up because of a temporary reprieve on tariffs that are expected to be supportive.
Shares traded at under $4 per share through the first week of May but then began to move rapidly upward in the second week, peaking at almost $8 on May 14th. This rise coincided with a meeting between American and Chinese representatives in Geneva, resulting in a temporary stay on tariffs that was announced on May 12.
While the stock market at large benefited from this announcement, the news was particularly good for Newegg. With its focus on consumer electronics, Newegg was especially vulnerable to the triple-digit tariff on Chinese goods that had prevailed since April.
To a lesser degree, Newegg has also benefited from a 20-to-1 share combination that was implemented in early April. This combination was necessary for NEGG to regain compliance with NASDAQ listing requirements by maintaining a minimum share price of $1 (note that prices listed above are on a post-combination basis).
Newegg regained compliance almost immediately after its shares were combined, removing the possibility that the company’s shares could be delisted.
Though a change in the number of shares doesn’t affect the intrinsic value of the company, mitigating the changes of delisting likely gave the price a modest boost by removing the immediate risk of reduced liquidity.
Newegg Is Still Struggling
With NEGG’s recent movements hinging on the external factor of tariff rates, it’s easy to overlook actual performance when looking only at its share prices.
The earnings report for last year was somewhat worrisome with net sales falling to $1.24 billion from $1.50 billion in 2023. Gross profit also tumbled from $167.6 million in 2023 to $131.5 million last year.
The decline in the top line last year followed a broader trend that has plagued the business for years. While Newegg was a go-to for electronics purchases in the 2010s, the company has seen its moat erode steadily due to a combination of greater pressure from other online retailers and struggles with PR over allegedly poor customer service.
Net income remained negative last year, but it did improve to a loss of $43.3 million from a loss of $59.0 million in 2023. Another somewhat bright spot for Newegg is its balance sheet. It still has about $96.3 million of cash and cash equivalents on hand and has no long-term debt on its balance sheet as well as a $50 million credit facility it has yet to draw on.
Partially as a result of ongoing uncertainty around tariff and trade policy, Newegg’s management declined to offer guidance for 2025. Management does, however, expect to see a positive adjusted EBITDA in Q1. Even with this positive development, it remains deeply uncertain if or when Newegg will be able to deliver positive GAAP earnings for its shareholders.
What About Valuation?
At first glance, NEGG doesn’t look bad from a value perspective. At 0.1x sales and only a little over 1x book value, Newegg is trading at a level that might normally get value investors interested.
The problem is that its declining revenues and vanishing moat make it more likely that NEGG is a value trap than a value buy.
We can see some further evidence of this when looking at long-term declines in NEGG share prices. Factoring in two hefty reverse stock splits in the intervening years, one share of NEGG would have traded for over $2,000 when the stock was at its highest point during its 2010 IPO.
With Newegg having lost more than 99% of its value over a decade and a half of public trading and with steep losses still defining the company’s bottom line, it seems unlikely that NEGG shares will stage a sudden rally at this late date.
Is Newegg a Buy, Sell or Hold?
Taking both its financials and fading competitive position into account, Newegg looks like a stock that may be worth selling.
Even if temporary rallies occur, the long-term outlook for the company doesn’t look especially promising. Although there is a lack of long-term debt, the ongoing losses at Newegg aren’t sustainable indefinitely.
It’s also worth noting that Newegg may very well be in for big picture difficulties that might compound its own underlying headwinds as a business.
With consumers facing higher prices and the economy appearing likely to tip into a recession this year, spending on non-essential consumer electronics could contract. Even if Newegg was delivering robustly positive results, current economic difficulties could present worries about its future.
While it’s always possible that Newegg could stage a comeback, there doesn’t seem to be much here to appeal to investors. Barring unexpected developments, Newegg may well have peaked several years ago. While some risk-tolerant investors may be willing to take a look at Newegg for its potential to rally on possible future improvements, NEGG doesn’t look like a stock to own for the long run.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
