Many stocks have held up well despite this year’s turbulent market, but few hold a candle to Shopify (NYSE:SHOP).
Not only is SHOP stock trading above where it was before the novel coronavirus, it now trades about 40% above where it was at the stock market’s peak.
And that’s no surprise. While brick-and-mortar businesses took a beating due to the “stay-at-home” economy, the “new normal” was a tailwind for big tech and e-commerce. That’s the reason Shopify and other names, such as Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX), continued to make new highs through the spring.
Wall Street is now banking on a V-shaped recovery, and many hard-hit names are starting to rebound accordingly. That’s taken some of the wind out of Shopify in recent weeks.
Shopify stock has held steady around $750 per share in the past month. Perfectly reasonable, as investors are weighing a rich valuation against the company’s long-term runway.
But don’t take this to mean, “SHOP is peaking.” Shares may dip a bit in the near-term, as those who got in early take profits. But for long-term investors, consider any pullback to be a strong buying opportunity.
Shopify Stock Remains in the Catbird’s Seat
Considering the windfall e-commerce received due to the pandemic, one would assume “stay-at-home stocks” like this one are only enjoying their temporary day in the sun. But that perspective doesn’t quite do this company justice.
The blockbuster performance of Shopify stock didn’t suddenly start in 2020. When this company held its IPO (initial public offering) in 2015, shares went for just $17 per share. By 2019, shares had risen ten-fold, or 1000%.
And of course, that wasn’t the end of the company’s epic move upwards. After hitting $170, shares more than doubled before the end of 2019, closing around $400 per share. And now?
Just six months into 2020, we’ve seen shares nearly double from that price, as they now trade around $760 per share.
As I said last month, stock prices don’t climb like this without a good reason. Of all of the megatrends at play right now, e-commerce is far ahead of the pack. Other innovations, such as self-driving cars, may still be works-in-progress. But e-commerce is and will continue changing the game when it comes to retail.
And with Shopify, you could argue you are getting a much stronger opportunity to play this trend. Unlike sector peers Amazon or Alibaba (NYSE:BABA), the company is selling backend infrastructure, rather than acting as a direct retailer or as a marketplace.
In short, while everyone else is prospecting in our generation’s “gold rush” (e-commerce), they’re the ones selling the shovels. And that puts them in the catbird’s seat. When you factor in the company’s potential to disrupt Amazon, it’s no mystery why investors have turned made this the hottest of all “hot stocks.”
How to Play This Stock at Today’s Valuation
Granted, it’s obvious Shopify is one of the greatest growth opportunities out there. But that’s why shares now command a premium valuation. Should this be a red flag for investors looking at the stock today?
It depends. On one hand, you could make the argument that the stock has gotten ahead of itself. Shares today trade at a staggering forward price-to-earnings (P/E) ratio of 1,395.4! Yet, keep things in perspective. Like Amazon in its early years, this company isn’t too concerned with profits right now.
Instead, they are investing every penny back into the business, to fuel continued above-average growth. You aren’t buying Shopify today for its cash flows, you are buying it for its ability to scale into an Amazon-size behemoth. And with the company projecting 25.5% revenue growth in 2020 and 37% growth in 2021, this company could easily live up to today’s sky-high expectations by the end of the decade.
However, don’t take that to mean, “buy SHOP at any price.” Granted, I have been a bull on this stock for years, and my opinion hasn’t changed. But today’s prices may not be the best entry point.
Simply put, buy this potential long-term winner on any dip, and don’t look back.
The Best Days Lie Ahead for Shopify Stock
Besides valuation concerns, you may be worried that small businesses (the company’s main customer base) will continue to struggle through this year, and perhaps the next. Back in April, I discussed this issue, making the argument that government intervention could help soften the blow.
Sure, if another stimulus isn’t around the corner, we could see some headwinds for this seemingly bulletproof company. Yet long-term growth remains in motion.
E-commerce isn’t going away. And this means this company’s growth potential remains in play.
Buy Shopify stock on any pullback, as it remains the best way to play the continued growth in e-commerce.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
