Canadian e-commerce company Shopify (NYSE:SHOP) was already a growth story before the pandemic hit — Shopify stock posted a 187% gain in 2019. But 2020 served up the perfect scenario for SHOP: a surge in online shopping accompanied by a frantic rush by small retailers to get online. The company just posted record-smashing third-quarter results. And we’re heading into the holiday shopping season. Stores may be open again, but the pandemic remains in full effect and online shopping is expected to continue its popularity.
In other words, everything is in place for Shopify shares to keep posting phenomenal growth. And here’s where there’s an opportunity for canny investors. SHOP stock had just about recovered from the September tech stock selloff, but took a hit after it reported Q3 earnings. It’s already beginning to bounce back, but if you move quickly, you can pick up shares in this Portfolio Grader “A”-rated growth stock at a discount.
Everything’s Coming Up Shopify
2020 has defied description. A global pandemic triggered a record stock market crash. Lockdowns closed stores. In September, the market experienced a broad selloff of tech stocks.
Despite these tumultuous events, SHOP stock is experiencing over 150% growth for the year. The factors that hit so many companies have actually worked in Shopify’s favor. Online shopping? That’s its primary business, and the company has been busy building out its own fulfillment network. Small retailers forced to shut their stores? Shopify’s specialty is affordable, easy-to-implement e-commerce sites that allow these retailers to maintain their independence and brand identity.
Stocks in some sectors have seen phenomenal growth in 2020 that simply won’t last. For example, many biotech companies have seen their stocks rocket in value as they were caught up in the enthusiasm about all things vaccine-related. Many of these will see their value slide once the rush to release a Covid-19 vaccine is over.
E-commerce stocks — including SHOP — have also seen big gains, but there’s a difference. The pandemic has accelerated adoption of online shopping, but it’s not going to stop once the pandemic is over. The small retailers that rushed to set up a Shopify site for their business are likely to keep it. The online presence will bring in sales from customers outside their immediate area, as well as locals who simply don’t want to get off the couch. If anything, they may go further in on Shopify products, such as adopting a Shopify point of sale (POS) system for their brick-and-mortar store.
Why Shopify Stock Dropped
On Oct. 29, Shopify delivered a Q3 earnings report that smashed multiple records for the company.
GMV (gross merchandise volume) — the value of all sales by merchants on the Shopify network — hit $30.9 billion. That’s a 109% year-over-year increase, and also beats the previous record of $30.1 billion set in Q2. Monthly recurring revenue (MRR) represents the subscription fees paid by merchants. It was a record-setting $74.4 million, up 47% year-over-year. The company also set a new record for quarterly revenue at $767.4 million. That’s a 96% year-over-year increase.
So why did SHOP stock drop? The blame is largely because the earnings beat — $1.13 per share instead of the expected 50 cents — wasn’t as spectacular as some had expected. That, and the company declined to provide Q4 guidance because of pandemic uncertainty.
The Bottom Line
It’s pretty obvious that I think Shopify shares are going to continue to deliver long-term growth. While not all analysts are as convinced as I am that the the e-commerce company can maintain its trajectory, others are even more bullish on SHOP stock. At the end of September, Wedbush analyst Ygal Arounian upgraded his rating on SHOP to “outperform,” while raising his price target to $1,300 from $998. Arounian sees:
“… the pull-forward in e-commerce trends as being sustainable over time, driven in large part by ongoing changes to consumer habits.”
I agree wholeheartedly. Do shares in Shopify have nearly 27% upside? With what is shaping up to be a spectacular holiday shopping season, it’s far from unreasonable to think so. With SHOP stock already beginning to bounce back from the post-Q3 drop, now is the time to buy if you also agree.
On the date of publication, Louis Navellier had a long position in SHOP. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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.
