For the better part of 2019, shares of Canada’s biggest tech company, Shopify (NYSE:SHOP) did nothing but run higher, as investors rewarded its fast-paced sales and new innovation. In fact, the stock ran from a January 2019 low of $131.17 to a high of $407.88 by August, even as the broader market became excessively volatile.
Unfortunately, as we’re all well aware, not even the best stocks can run higher forever.
Since peaking at $409.61 in August, bears sent the SHOP stock 30% lower to $286.07 after announcing a secondary offering of 1.9 million shares at $317.50 to help strengthen its balance sheet. However, the pullback has created a long-term buying opportunity.
Before long, we expect for the SHOP stock to resume its incredible uptrend, especially as SHOP just begins jumps on the cannabis bandwagon.
Shopify Is Already Benefiting from a Shift to Digital
At the moment, we’re witnessing a substantial shift from brick-and-mortar retail to digital.
That’s because retailers understand that if they don’t move online, they can’t survive, especially against industry behemoths like Amazon.com (NASDAQ:AMZN). They’re also realizing an online presence removes geographic boundaries, allowing them to reach new markets.
That includes cannabis retailers as well.
At the moment, sales of CBD products are expected to grow 700% in 2019 year over year, says the Brightfield Group. As CBD demand increases, cannabis companies are moving online — and fast. And much like traditional retailers, cannabis companies are realizing that without an online presence, they’re limiting their reach to new potential markets.
That’s where Shopify comes in.
SHOP Stock Could See New Highs with Cannabis Growth
While SHOP won’t sell or grow cannabis, many companies that do are using the online Shopify platform to bring in sales. In fact, Shopify just introduced new features to help cannabis retailers establish and expand an online presence.
So far, the company has also been quite active in the Canadian market, as well. In fact, it provides a platform for the Ontario Cannabis Store.
It also just expanded, opening its commerce platform to cannabis companies in the U.S.
“Shopify has unmatched expertise in emerging industries, along with the resources merchants need to be successful in the fast-growing market of hemp-derived CBD products in the U.S.,” Shopify COO Harley Finkelstein said.
Still Undervalued — And Growing Fast
We have to consider that overall e-commerce demands will only increase over time — exposing SHOP stock to an incredible growth. In fact, according to eMarketer, global e-commerce will rise nearly 21% in 2019 to $3.535 trillion. By 2021, global e-commerce could reach $5 trillion.
Earnings growth has been incredibly explosive as well.
Total second-quarter revenue soared 48% year over year to $362 million. Subscription Solutions revenue was up 38% to $153 million. Merchant solutions revenue was up 56% to $208.9 million. Gross merchandise volume (GMV) was also up by 51% to $13.8 million.
Adjusted EPS was 14 cents, compared with the average analyst forecast of three cents.
Going forward, for full year 2019, Shopify increased its revenue outlook and now expects revenue in the range of $1.51 billion to $1.53 billion. For the third quarter, it now expects revenue to fall in a range of $377 million to $382 million.
The Bottom Line on SHOP Stock
Shopify is a long-term winner that hit a temporary rough patch. We don’t believe it’s anything to be concerned with. Instead, we’re focusing on the long-term growth story behind the stock.
One, traditional retailers are moving online to capture market share. Two, global e-commerce growth is unstoppable. In fact, it expected to become a $5 trillion market by 2021. Three, the company has wised up to the cannabis boom, jumping on the bandwagon as related retailers go online.
In addition, it’s tough to argue against its earnings growth.
The pullback, in our opinion is now over. Within the next few months, SHOP should resume the powerful uptrend it has enjoyed since the start of 2019.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
