3 Reasons to Buy Shopify Now |  Motley asshole

3 Reasons to Buy Shopify Now | Motley asshole

Few of the growth stocks were hit hard in the heavy selling in the market such as Shopify (store -7.02%).

Shares of the e-commerce software company have fallen 80% in just six months due to a combination of shifting market sentiment, slowing growth in e-commerce, and lower valuations in the software-as-a-service sector all ripping apart the inventory.

Even after that drop, it’s still hard to call a cheap Shopify. It trades at a price-to-sales ratio of 7 based on subsequent results, and the price-earnings ratio is well beyond the triple digits.

But buying Shopify can be a smart step along the way. Here are three reasons why you should take advantage of the discount.

Image source: Getty Images.

1. Stock is below pre-pandemic levels

A stock market fixation (when you use a past price to put the current price into perspective) can be a bad idea because markets change and the stock doesn’t really care about its past price. But sometimes the installation makes sense.

For example, in the first two months of 2020, before the pandemic, Shopify never traded for less than $395 a share, rising to $593.89 on February 12, 2020. By comparison, the stock was below $350 on Friday, May 20.

Shopify shares have regressed from pre-pandemic levels even as revenue tripled through 2020 and 2021. For that to be a rational move, the stock’s outlook must be dramatically worse. While the growth rate has slowed in the short term as the company faces tough comparisons with the pandemic and there has been a pull-forward effect in e-commerce from COVID, the long-term opportunity in online retail still looks promising.

There is no reason to believe that the e-commerce market has suddenly matured.

2. Its growth rate will accelerate

Shopify’s revenue growth fell to 22% last quarter, the slowest in the company’s publicly traded history, but there’s a good reason for that.

Like other e-commerce companies, Shopify has been rocking the last quarter before vaccines became available to the general public and one in which consumer spending was subject to stimulus checks. Almost every e-commerce company reported disappointing results in the first quarter, and Amazon I even reported a drop in first-party sales.

This Shopify has been able to outpace its peers in a challenging environment that shows it continues to gain market share, but the difficult comparison also means that its growth should accelerate as the year progresses and comparisons become easier. With the recent sell-off, investors seem to be overreacting to the short-term news.

3. Buying with Prime is not a Shopify killer

One reason for Shopify’s passivity is Amazon’s new Buy With Prime program, which allows shoppers to shop with Prime benefits on special merchant sites. Previously, Prime was only available through Amazon.

While this seems like a smart way for Amazon to tap into its Shopify user base, if the program is successful, it may not be easy for Amazon to scale up to meet demand, given that the company was already stretched out once during the pandemic with delivery times becoming slower than usual. It is not easy for a company the size of Amazon to increase its capacity.

CEO Tobi Lütke was asked about Buy With Prime on a recent Shopify earnings call, and his response was clear. Lütke sees it as more of a complementary service than a competitor because it should expand the e-commerce market and attract new online sellers, which is ultimately a good thing with Shopify. As he put it, “Whatever is good for merchants — will lead to more entrepreneurship, which is exactly — helps in the vision of the company.”

2022 is likely to be a difficult year for Shopify, especially since higher interest rates are expected to cool the economy. But in its guidance, management expected an acceleration of revenue growth with the fourth quarter being the strongest. A year from now, the Shopify story will probably look a lot better than it does today, and there’s a good chance the stock price will reflect that.

The stock fell mostly due to short-term concerns. Now is a great time to take advantage of a massive sale.



2022-05-20 21:26:58

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