Stocks on a whole are suffering in the new year, but perhaps none more than some of the pandemic darlings that enjoyed massive success in 2020 and much of 2021. Take Shopify (NYSE:SHOP), for example. The e-commerce platform operator was a prime beneficiary of the accelerated shift to online shopping spurred by the pandemic. SHOP stock soared 477% from its March 2020 low near the $300 level to its November 2021 high of $1,762.92. But since then, SHOP stock is down more than 50%, including a 40% drop since the start of the year.Source: Burdun Iliya / Shutterstock.com
This isn’t all Shopify’s fault. Pandemic plays lost their sheen as lockdowns eased. And investors concerned about inflation and less accommodative monetary policies have turned their backs on growth stocks.
Of course, the trend toward online shopping is only going to continue to gain momentum. In the U.S. alone, e-commerce sales are projected to exceed $1.3 trillion in 2025, representing a compound annual growth rate of nearly 15%.
What’s more, Shopify recently entered into an agreement with a Chinese e-commerce giant that should pay off for shareholders. But given near-term headwinds, I would wait for a further dip in SHOP stock before taking a position.
Shopify Growing at an Impressive Pace
While the pandemic juiced Shopify’s revenue, it had been growing at an impressive clip for years. In 2016, the company reported $389 million in revenue. By 2019, annual revenue was nearly $1.6 billion. Then, in 2020, as the pandemic caused more people to shop online, Shopify saw revenue soar 85% to $2.9 billion.
And, unlike some growth companies, it’s not just Shopify’s top line that is growing rapidly.
In 2013, the company’s gross merchandise volume — the total dollar value of orders processed on Shopify’s platform — surpassed $1 billion for the first time. By 2016, it had increased to $15.4 billion, and it hit $119.6 billion in 2020.
Gross profits increased from $209 million in 2016 to $1.5 billion in 2020. In the final quarter of 2020, Shopify posted its first quarterly net profit. And for the first nine months of 2021, the company reported $3.3 billion in net income.
Even given its rapid growth thus far, Shopify still has ample room to run. It is one of the top e-commerce players and the company consistently launches new services for users to enable them to shop on the platform.
Analysts predict Shopify’s revenue will nearly double this year to $5.8 billion before slowing in 2023 to “only” 33% growth.
Shopify Expanding Internationally
This represents a huge opportunity for Shopify to access the fast-growing Chinese market. Merchants will be able to use Shopify’s software to establish a presence on JD’s platform. And JD will take care of the shipping logistics and currency exchanges.
International expansion like this will be an important growth avenue for Shopify as the pandemic’s impact fades. Yet, SHOP stock fell 14% on the day the news was released and has continued lower. However, this likely had little to do with the reception of the deal and more to do with broader market forces and the belief that SHOP stock is still overvalued.
The Bottom Line on SHOP Stock
Even after a 50% haircut, SHOP stock still looks expensive. Shares are trading at 44 times trailing 12-month sales and 54 times trailing earnings.
That said, based on the company’s growth prospects, SHOP stock could be a good long-term bet. But in the current market environment, investors would be wise to wait for a bigger dip.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.
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