In recent months, price action with Shopify (NYSE:SHOP), one of the top performing stocks in recent years, has been a bit choppy. Since the summer, SHOP stock has bounced between $1,300 and $1,700 per share. Blame this largely on market volatility as investors have responded positively to company-related news.
Unfortunately, this middling performance could carry on in the short term. There’s still the concern that “pandemic plays” are played out. Other investors may be concerned about its valuation. Even so, it may be premature to say it has reached its “show’s over” moment.
Although its rate of growth has slowed down since 2020, its sales keep rising at an above-average clip. E-commerce growth overall may be starting to slow down. Yet, as seen from the numbers its merchants posted on Cyber Monday, the deceleration of the shop-from-home trend may not mean the end of Shopify being a growth play, especially as new initiatives could help it meet/beat expectations in the quarters ahead. In particular, going after an untapped market appears promising. Let’s take a closer look and see why.
The Latest with SHOP Stock
To put it simply, investors don’t know what to make of Shopify right now. On one hand, they’re still reacting favorably to company-specific news.
For instance, revenue and earnings for the quarter ending Sep. 30 fell short of expectations. But investors still bid up SHOP stock on the news. 46% year-over-year revenue growth, even when below analyst consensus, is still something to celebrate. However, we are still dealing with the fear, uncertainty, and doubt that’s been hanging over the markets in recent months.
These worries plus the perception that pandemic plays are over have impacted Shopify’s ability to keep on trucking to higher prices. We’re seeing this play out today. Fears over the latest Covid-19 variant (omicron) are knocking stocks lower across the board, this one included. Yet while volatility knocks it a bit lower, I wouldn’t necessarily view it as your cue to follow suit. This is based on one recent development plus a catalyst that could arrive in the months ahead.
Solid Performance on Cyber Monday
I’m sure you’ve seen the headlines about how the e-commerce economy fared on Black Friday and Cyber Monday, two of the biggest shopping days of the holiday season. Online-only sales on Black Friday came close, yet failed to match the record numbers seen in 2020.
The same thing happened with e-commerce on Cyber Monday. With a total of $10.7 billion in online retail sales on Cyber Monday 2021, it was also close, but no cigar compared to the $10.8 billion rung up on Cyber Monday 2020.
Nevertheless, while overall sales came in below last year’s high mark, the same can’t be said about the merchants that Shopify supports with its platform. Its network of small business and direct-to-consumer companies handily topped 2020 numbers for both Black Friday and Cyber Monday. So what’s the takeaway? Even as e-commerce growth slows down as a whole, Shopify’s e-commerce ecosystem is still running hot.
Success in B2B Could Make Shopify Red Hot Once Again
With its main business still firing on all cylinders, it’s nowhere near “game over” for SHOP stock. Considering that investors believe that the retail e-commerce trade is over and done with, this alone may not swing sentiment back from on-the-fence to bullish.
The company’s move into business-to-business (B2B) e-commerce solutions could help. Starting next year, the company plans to upgrade its Plus platform, adding B2B features that could make it more appealing to large enterprises. It could also mean more upsell opportunities for the company. These new features may entice existing customers to upgrade to Plus.
B2B represents trillions of dollars in annual transactions. It’s an untapped market for Shopify, and a new frontier in which the company, after crushing it in its existing market, could again repeat its past success. If it all pans out, it could also mean some reacceleration of the company’s growth. In turn, this could drive renewed bullishness for the stock among investors.
The Verdict With SHOP Stock
Per a Wall Street Journal survey, sell-side consensus comes in as “overweight” on the stock. The average analyst price target is $1,702.52 per share.
Based on its recent performance, you may be wary about buying SHOP stock today. But given that the underlying story remains intact, and an upcoming product launch could kick it back into high gear, I wouldn’t write it off just yet.
On the date of publication, Thomas Neil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
