Down 74%, should smart investors buy Shopify stock during a bear market?

The eCommerce industry has been in the worst chaos in recent memory. On the one hand, it makes a lot of sense. The pandemic pushed many people, quite unwittingly, to turn to online shopping, accelerating the secular trend and dimming the overall growth picture.

But now that the global economy has largely reopened, the tables have turned quite a bit. According to US Census data, electronic commerce Sales represented 14.3% of total retail sales in the first quarter of 2022, down 14.9% from a year ago and marking its second consecutive quarterly decline.

Of course, these latest trends have had a negative impact on businesses focused on online shopping like Shopify (STORE 11.10%), which has seen its share price plummet 74% year to date. The company, which enables entrepreneurs and businesses to easily create and customize online stores, released its latest earnings report on July 27, giving investors an additional glimpse into the dynamics of e-commerce today.

In light of unfriendly macro conditions, is it time for astute investors to buckle up and buy shares of major e-commerce software stocks?

Person in cafe shopping online on cell phone.

Image source: Getty Images.

Shopify continues to fight

In its second-quarter launch, the e-commerce software leader increased total revenue by 15.7% and reported a net loss of $0.95 per share, creating a big gap from its positive earnings of $0.69. per share in the same quarter last year. The dismal overall and financial results, which fell short of Wall Street forecasts, came shortly after the company declared it would cut its workforce by 10%.

To no one’s surprise, management noted in the earnings release that high inflation and the environment of rising interest rates will be tough on your business for the rest of the year. The company referred to 2022 as a “transition year,” in which the e-commerce industry has reset to its pre-COVID trend line.

On a more positive note, Shopify’s monthly recurring revenue (MRR) increased 12.7% year-over-year to $107.2 million, indicating that more merchants are still joining the platform, and its volume gross merchandise (GMV) expanded 11.1% to conclude at $46.9 billion. . GMV represents the total dollar value of orders fulfilled through the Shopify platform.

For fiscal 2022, Wall Street analysts estimate that the company’s total revenue will rise 19.9% ​​to $7.1 billion and earnings will be in the red again at -$0.07 per share, versus positive $0.82 a year ago. Next year, analysts predict its top line will grow another 21.9% and the company will report a positive bottom line of $0.06 per share.

However, the pandemic really muddied the waters for Shopify’s growth story, and it will likely take a few years for the situation to fully resolve itself. But given its strong market position and the upward trajectory of the e-commerce market, I think we will see a day when the company is consistently profitable.

And now that it’s trading at 9.2 times sales, which easily falls short of its five-year average price-to-sales multiple of 32.7, it might be a good idea for investors to take a look at the stock.

What should investors do right now?

While it’s not readily apparent, Shopify is still advantageously positioned for strong growth in the years to come. The company is responsible for 31% of US websites using e-commerce technologies, making it the largest e-commerce software platform in the country, with a 21% global market share , surpassed by its competitor WooCommerce.

Knowing that, and also being aware that the world digital commerce market projected to grow at a compound annual growth rate (CAGR) of 15.1% through 2030, investors should be intrigued by the company’s new liquidation. In my opinion, Shopify is still a wonderful long-term game for those willing to put up with some short-term growing pains.

lucas meindl has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Shopify. The Motley Fool recommends the following options: $1,140 January 2023 Long Calls on Shopify and $1,160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.

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