SHOP - Shopify Could Be Undervalued Based On A Long-Term Horizon
2024-05-09 15:05:14 ET
Summary
- Shopify's CEO, Tobi Lütke, prioritizes long-term market value over short-term profits, aligning with strategies seen at Amazon, aiming for sustained growth and market presence.
- Despite high current valuations and its large market cap, Shopify is seen as fairly valued in the medium term and possibly undervalued over 10+ years, with substantial growth potential.
- Shopify plans to expand internationally, enhance its Shopify Plus service, and further integrate AI and ML. It also has the potential to develop its financial services significantly.
- Investors should be willing to endure periods of price volatility due to the firm's long-term focus on customer satisfaction over short-term financial results.
Shopify's CEO Is Committed To Long-Term Value
I researched Shopify ( SHOP ) before in February 2024, and I allocated a Hold rating. Since then, the stock has decreased by around 5% in price. In my report, I concluded that the company might be quite a risky investment, primarily due to issues in profitability stabilization and its current high valuation. However, as I have continued to hone my knowledge of the software and retail industry and also developed a deeper perspective on investing in companies not yet reliably profitable, I have come to upgrade my view on Shopify from a Hold to a Buy rating. My primary reason for doing so is that I believe Shopify is taking a very long-term perspective, akin to how Amazon ( AMZN ) has historically operated, effectively sacrificing short-term profits for future market value. I believe Shopify's business won't scale to the height of Amazon, nor do I think its management necessarily has this ambition. However, I believe it still has a lot of room to grow, and I think the company is moderately undervalued on a medium-term horizon of around three years but more significantly undervalued if investors look at the potential of the investment over a 10+ year holding horizon....
Shopify Could Be Undervalued Based On A Long-Term Horizon