with Nasdaq Composite Index In record territory, you might think that most stocks are also near all-time highs. But that’s not the case.
take Shopify (New York Stock Exchange: Shop). As of May 15, the leading e-commerce platform’s stock price is 65% below its all-time high set in November 2021. It’s no wonder Wall Street isn’t happy with the company’s recent financial performance.
Does this discount make Shopify a once-in-a-generation investment opportunity right now?
worried about instruction
Shopify sells a variety of hardware, software, and financial services tools that allow anyone to quickly establish an online retail presence, and continues to record rapid growth despite macro headwinds. Masu. Gross merchandise value (GMV) increased by 23% to $60.9 billion, and revenue also increased by 23%. This marks Shopify’s seventh consecutive quarter of year-over-year sales growth of over 20%.
So why did the stock soar 19% right after the latest financial update? The market is looking to the future, with management forecasting second-quarter sales growth of “high 10%” and investors disappointed. While this is within Wall Street consensus expectations, it would represent a slowdown from the past few quarters.
Think about the big picture
Investors should try to zoom out and maintain a long-term view when considering Shopify as a potential addition to their portfolio. There are some important factors to keep in mind.
Despite the potential slowdown in sales this quarter, it’s easy to be optimistic about the business in the coming years and beyond. Shopify is benefiting from the continued growth of online shopping, which accounts for less than 16% of all retail spending in the U.S. As more commerce is done digitally, the company It has gained a 10% global share in the platform market and will continue to benefit from it.
Growth is likely to accelerate further as it begins to penetrate more into the market for enterprise customers. Additionally, Shopify is expanding into offline retail. The downside to this focus is that it only increases competition from companies such as: Adien, PayPal, block,stripe.
But it’s hard to believe that Shopify has become a mission-critical service provider for millions of customers who rely on Shopify to ensure their operations run seamlessly. This trend should be further amplified as businesses focus on continuous product development efforts.
As a matter of course, artificial intelligence (AI) is a top priority. Shopify Magic lets sellers use his AI-powered tools to better edit images, write product descriptions, and draft emails. This can lead to financial success for the seller and ultimately increase his GMV and revenue potential.
The company has been able to improve monetization on its platform, as evidenced by its 3.06% attach rate (revenue divided by GMV) in the first quarter, which has steadily increased over the past five years. This clearly demonstrates the value that Shopify provides to its customers.
high expectations
It’s not difficult to convince someone that this is a quality business with great growth potential. The problem, however, is that this optimistic outlook is fully reflected in the stock price, even though the stock is well off its peak.
The stock trades at 10x sales. while it’s down Price to sales ratio At $17 just three months ago, this valuation suggests investors still have high expectations for the business and the stock. Not only does this increase risk if Shopify continues to report unpopular financial updates, but it also limits the potential for significant investment return upside.
This is not a once-in-a-generation shopping opportunity. But if investors like the business, I think it’s best to wait until there’s a better entry valuation.
Should you invest $1,000 in Shopify now?
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Neil Patel and his clients have no position in any stocks mentioned. The Motley Fool has positions in and recommends Adyen, Block, PayPal, and Shopify. The Motley Fool recommends this option: His June 2024 $67.50 Short Calls on PayPal. The Motley Fool has a disclosure policy.
1 Growth stocks fall 65%: Is this a once-in-a-generation investment?Originally published by The Motley Fool
