Up 51% in 2023: Is Shopify Stock a Buy Today? The Motley Fool Canada

As Shopify continues to make e-commerce simpler, easier, and more democratized, we can expect more of the same as this company’s expansion escalates. The platform is a vertically integrated, out-the-box solution that can also be customized to fit most business needs. When the pandemic hit, the company saw a big boost in sales corresponding with widespread stay-at-home orders. The company’s operating income for the year was $90.2 million versus an operating loss of $141.1 million the prior year.

With rates rising faster, investors aren’t as willing to pay up for sales growth. Further, they will not be nearly as forgiving if a company fails to impress in its quarterly earnings. Now, the valuation reset has lowered the bar ahead of first-quarter numbers. Still, an economic downturn will not bode well for online retailers as a whole. Further, SHOP may be able to increase its take rate for purchases made using Shopify Payments in the future.

But the economy is reopening, and e-commerce is feeling the pinch. People are itching to go outside to visit brick-and-mortar stores, pulling capital away from Shopify. Technology stocks sold off in the first half of the year, and there’s a lot of competition on the horizon. That’s just the tip of the iceberg of risks to investing in this ecommerce darling. Shopify experienced a big boost in sales over this past year or so.

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Shopify Stock Analysis: Historical quarterly revenues per share for Shopify and historical quarterly revenue growth:

However, Shopify’s disappointing first-quarter earnings report and surprising purchase of Deliverr — its largest acquisition ever — strongly indicate those estimates are still too high. Therefore, I wouldn’t be surprised if Shopify loses at least another third of its market value before it bottoms out. Adjusted gross margin fell 280 basis points year over year to 53.7% as Shopify recognized a higher mix Binance cryptocurrency exchange of lower-margin revenues from its Merchant Solutions business and Shopify Payments. Its cloud infrastructure investments and revenue-sharing deals with third-party app and theme developers also exacerbated that compression. Canadians who missed the Shopify boat over the years may finally get a chance to punch their ticket at a reasonable valuation, perhaps even at a single-digit price-to-sales multiple.

  • However, a recent spike in its share price has made its stock an expensive option, especially compared to its competitors.
  • For example, Shopify recently introduced Sidekick, an AI-enabled e-commerce assistant.
  • The growth Shopify has already experienced – and the continued growth analysts expect – could justify the recent jump in valuation.
  • On the other hand, challenges for Shopify include potential shifts in the competitive landscape, as the e-commerce market continues to evolve.

It’s game changing, and Shopify is harnessing its power and bringing it to its merchants. Shopify (SHOP -3.34%) stock has given up several years of gains in just a few painful months this year. The e-commerce giant was hit by a sharp demand slowdown just after management committed to a spending plan that assumed much higher sales.

Many investors are hoping for a post-split rebound.

In their most recent quarter, Shopify would likely have generated positive net income absent the impairment on the sale of their logistics business. It’s entirely possible that the company will become GAAP profitable in the next couple of quarters, which could attract additional investors to the stock. As I assess Shopify Inc.’s near-term trajectory, I acknowledge velocity trade its strong market position and ongoing growth potential. Shopify’s growth rates point towards the low 20s for the quarter ahead. However, adjusting for the sale of its logistic business, its growth rate is expected to come close to the mid-20s% CAGR. That being said, for the most part, Shopify has a history of being conservative with its guidance.

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And while Shopify’s stock price is still not cheap, I like that the risk profile of the company has come down, and in my view, SHOP stock is likely to do well in the long-term. In fact, free cash flow for the upcoming quarter will be greater than that of the entire first half of the year. After many years operating as a money-losing business, Shopify is decidedly cash flow positive. This means that its free cash flow, which is defined as operating cash flow minus capital expenditures, is in the green. In fact, the latest quarter saw free cash flow of $97 million, or 6% of revenue. This compares to negative free cash flow of $87 million in the same period last year.

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Because SHOP has not yet maximized its profit margins, one should not value the stock on the basis of present earnings. Instead, one might prefer to use gross profits, as gross margins are also low at 56.5%. Because fulfillment costs are primarily present in the “cost of merchant revenues,” this means that gross profit is essentially the amount after fulfillment costs.

Looking forward, Wall Street expects SHOP to continue growing rapidly. Consensus estimates call for SHOP to report strong revenue growth moving forward, but real operating leverage to take place only starting in 2023. Clearly, SHOP benefited from easy comparables, as 2020 Q1 was the last quarter before the pandemic hit.

Additionally, Shopify is one of the most well-known ecommerce platforms on the market, which gives it an edge over its competitors. Shopify is a tech company that provides a platform for businesses to sell online. It has a stock market value of $10.8 billion and is the 9th largest tech company in the world. Unlike some other tech companies, Shopify’s stock is not volatile and its price has not changed much over the past year. The reason why Shopify’s stock is different from other tech companies is that it focuses on ecommerce instead of mobile or internet services.

This makes it a good investment for long-term shareholders who are looking for stability in their investments. Given those headwinds, there is no guarantee that Shopify shareholders will see a post-split bounce. Moreover, if the price does soar, the gains are likely to be short-lived. A stock split has no direct impact on corporate revenue or cash flow, which means splits are unlikely to have a lasting impact on valuation. For that reason, stock splits (and other short-term catalysts) make for a poor investment thesis.

In this piece, we’ll look at Shopify stock and determine whether the falling knife is worth reaching towards to play a potential growth bounce. Shopify (SHOP -3.34%) received approval for a 10-for-1 stock split at its annual meeting in early June. Shareholders also voted to issue CEO Tobias Lütke one “founder” share, a measure that effectively gives him review cycle analytics for traders 40% voting power for as long as he runs the company. The stock split will go into effect on June 28, and the stock will begin trading on a split-adjusted basis on June 29. At Best of Breed, my portfolio includes over 25 stocks projected to crush the market over the next decade. It isn’t enough to buy high-growth stocks, you have to buy them cheap.

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