Shopify (NYSE:SHOP) stock is taking investors on quite the roller-coaster ride in recent weeks.
First the company hit all-time highs in February, topping $531 per share. Then the stock market selloff hit, spurred by fears of the novel coronavirus pandemic, sending Shopify stock down 40% to $322.
But we’re not done. A 20% rally in March quickly fell victim to a 21% tumble by early April. And now the stock is back on the rise, gaining more than 8% so far this month as investors hold on for dear life.
Is the rally the sign of some stability for Shopify stock, and is this a roller coaster you should welcome in your portfolio? Let’s take a closer look.
Shopify Stock at a Glance
Shopify, a cloud-based commerce platform used by small- and medium-sized businesses to sell products online, has a market capitalization of $48.6 billion. It claims to support more than 1 million businesses in 175 countries.
The company reported Q4 earnings of 43 cents per share, trouncing analysts’ estimates of EPS of 24 cents. Revenue was $505.2 million, versus analysts’ estimates of $482.1 million, and represented a 47% increase from the previous year.
It boasted a positive 2020 outlook of $2.13 billion to $2.16 billion, which was better than analysts’ expectations of $2.11 billion.
But all that was before the coronavirus pandemic overtook the market, emerging first in China, then sweeping through the United States. More than 95% of U.S. residents are under social distancing and stay-at-home guidelines as cases in the U.S. top 560,000 with 22,000 deaths.
On April 1, Shopify withdrew its 2020 guidance, citing the pandemic’s effect on business. While it said its positive momentum from 2019 continued through January and February, the market slowdown began affecting Shopify’s business in March.
Shopify is scheduled to report Q1 earnings on May 6. Analysts are now expecting a loss of 19 cents per share. But there’s light at the end of the tunnel. Analysts are expecting Shopify stock’s losses to improve to a lesser loss of 6 cents per share in the second quarter, and then return to profitability in the second half of the year.
Looking Ahead at Shopify Stock
The story of Shopify isn’t a matter of poor management or a questionable business model. In fact, the company saw record sales in last year’s holiday shopping season. Before the pandemic hit, Shopify stock rose 196% in just a year.
But the economy’s engine — small- and medium-sized businesses — is taking a beating as people are forced to stay at home and unemployment soars. And if businesses aren’t working, then there’s a lesser need for Shopify’s unique platform.
And unfortunately, Shopify became a hot spot for fraudsters trying to take advantage of frightened consumers in the pandemic. According to a report in The New York Times, Shopify shut down 4,500 sites related to the coronavirus in one week after shysters purported to sell coronavirus-related products.
It’s important to remember, however, that the economy was humming along nicely before the coronavirus — this downturn is a result of a medical crisis, not because the market was fundamentally poor and needed a correction.
As social distancing rules relax, the economy will begin to rebound. There are even some indications that cases in New York are peaking and some parts of the country could begin returning to normal later this spring.
And as it does, Shopify stock remains in a solid position. SHOP allows people with small businesses to operate without hiring bookkeepers and marketing departments. Those are huge overhead expenses that companies will need to avoid as they begin to rebuild in the second half of 2020.
The Bottom Line on Shopify
I’ve been bullish on Shopify for a while now. I believe it’s a solid bet on the long-term health of the American economy in the 21st century.
Shopify stock gets an “A” grade in my Portfolio Grader.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.