The recent volatility we’ve seen of late may seem scary to those just getting into the stock market.
However, it should be noted that the market is still up significantly this year. For investors in Shopify (SHOP), this performance has been something to watch.
SHOP stock hit an all-time high earlier this month. This sort of positive price momentum has continued this year, despite various concerns that have broadly permeated growth stocks of late.
Of course, Shopify’s core business is growing in a very healthy way, and there’s a lot to like about the company’s strong positioning in the e-commerce sector.
I remain bullish on Shopify. (See Analysts’ Top Stocks on TipRanks)
New All-Time High for SHOP
Although Shopify has recently pulled back, SHOP stock recorded a new all-time high this month, despite reporting a rare quarterly earnings miss.
Most companies with valuations near where Shopify currently trades would plummet on such a miss. While SHOP stock did dip, this company’s stock price has rebounded in such a way as to indicate extremely strong demand for these shares. In other words, investors are waiting for any sort of dip to buy with this stock. That sort of intense investor demand for shares is hard to find in the market today.
The fact that it’s hard to buy Shopify on any sort of pullback is telling. The market believes Shopify’s prospects moving forward remain robust. Perhaps this latest market concern over what could be the strongest COVID-19 variant yet could provide a boost for Shopify stock. After all, investors should note how rapidly this stock accelerated through the pandemic thus far.
From a price-to-sales standpoint, Shopify’s stock price is certainly steep compared to nearly any company out there. However, there’s a reason for this valuation and market exuberance over this stock.
Analysts appear to be relatively bullish on Shopify, despite this incredibly high valuation. That’s hard to find. Most stocks with Shopify’s valuation would likely get different treatment.
However, how investors choose to value Shopify is what really matters. Right now, this e-commerce juggernaut appears to be one investors are willing to jump on, given any sort of meaningful dip, right now.
Earnings
Shopify’s track record of posting earnings beats every single quarter since the company went public six years ago is impressive. Accordingly, this past quarter’s earnings results that missed the mark for the first time ever shocked most who follow this company.
Much of this earnings beat appears to be attributed to a post-pandemic rally in brick-and-mortar-based shopping. As consumers return to the malls ahead of the holiday season, it’s feasible to consider that online sales could dip. Various supply chain shortages and shipping constraints have provided another headwind for Shopify’s transaction numbers this past quarter.
That said, Shopify was still able to post top-line growth in the mid-40% range. Thus, it appears Shopify’s growth thesis remains firmly intact.
Shopify is also a company that’s now minting cash flow and earnings. Currently, SHOP stock trades around 60x earnings, which is relatively attractive, given this company’s growth profile.
Many said Shopify could never grow into its valuation. However, here we are, and this company is one that has found a way to post impressive bottom-line numbers of late that investors appear to care more about than ever.
Pandemic Boost
There are many out there who (rightfully so) hate discussing the pandemic as a tailwind for any company. Millions of people have lost their lives from this virus, and it’s really one of the greatest tragedies of this century.
However, it’s undeniable that Shopify would not be in this position without the forced transition toward e-commerce we’ve seen of late. Thousands of small- and medium-sized businesses have transitioned to an online-only (or omnichannel) model as a result of the pandemic. For Shopify, this has been a good thing.
This new omicron variant provides an intriguing potential near-term catalyst for Shopify.
For investors in SHOP stock, the company’s e-commerce focus provides a sort of market hedge to the fact that more lockdowns could really hurt the broader economy. The fact that Shopify’s technological platform is relatively immune to these macro headwinds is a real positive catalyst to consider.
Wall Street’s Take
As per TipRanks’ analyst rating consensus, Shopify is a Moderate Buy. Out of 19 analyst ratings, there are 10 Buy recommendations, and nine Hold recommendations.
The average Shopify price target is $1,667.61. Analyst price targets range from a high of $2,000 per share to a low of $1,289 per share.
Bottom Line
Shopify remains a company long-term investors can rely upon for impressive growth. The company’s e-commerce focus provides a secular growth catalyst that’s hard to ignore right now.
With the pandemic continuing to provide a prospective tailwind, there’s a lot to like about the defensive hedge this stock could provide an investor with a growth-heavy portfolio.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
