NEW YORK (TheStreet) — More than 100 million people in the U.S. purchase things through the internet annually. The sector is one of the fastest growing in the sales and retail industries. And with more people cutting their cable subscriptions and turning to video streaming online, the internet will be in demand more than ever. But people aren’t just turning to the internet to watch movies — last year in the U.S., e-retail sales were over $300 billion.

So, what are the best internet retail stocks investors should be buying? Here are the top three, according to TheStreet Ratings,TheStreet‘s proprietary ratings tool.

TheStreet Ratings projects a stock’s total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

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VIPS ChartVIPS data by YCharts
3. Vipshop Holdings Limited (VIPS – Get Report)

Rating: Buy, B
Market Cap: $12.8 billion
Year-to-date return: 12.9%

Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People’s Republic of China.

“We rate VIPSHOP HOLDINGS LTD -ADR (VIPS) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company’s strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and solid stock price performance. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.”

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VIPS’s very impressive revenue growth greatly exceeded the industry average of 18.8%. Since the same quarter one year prior, revenues leaped by 97.9%. This growth in revenue appears to have trickled down to the company’s bottom line, improving the earnings per share.
  • VIPSHOP HOLDINGS LTD -ADR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, VIPSHOP HOLDINGS LTD -ADR increased its bottom line by earning $0.23 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($0.55 versus $0.23).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet & Catalog Retail industry. The net income increased by 122.9% when compared to the same quarter one year prior, rising from $26.59 million to $59.29 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Internet & Catalog Retail industry and the overall market, VIPSHOP HOLDINGS LTD -ADR’s return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company’s strong earnings growth was key. The stock’s price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

 

[“source – thestreet.com”]