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Cathie Wood Bought the Dip on SHOP Stock. Here’s Why.

  • Cathie Wood's funds bought many more shares of Shopify (SHOP) stock on weakness.
  • SHOP stock has reached its lowest price level since late 2019.
  • Shopify reported weaker-than-expected Q2 results today.
SHOP stock - Cathie Wood Bought the Dip on SHOP Stock. Here’s Why.

Source: Burdun Iliya / Shutterstock.com

Shopify (NYSE:SHOP) stock is trending and jumping 4% this morning after funds controlled by a well-known investor, Cathie Wood, bought SHOP stock on weakness. The stock tumbled earlier this week on a report that Shopify will lay off 10% of its workforce and an earnings miss by the company.

Three of Wood’s funds yesterday cumulatively bought an additional 1.7 million shares of the firm, which develops e-commerce websites for companies,

On a split-adjusted basis, SHOP stock has reached its lowest level since late 2019. And, although its valuation is still quite high, the shares are trading at a forward price-sales ratio of 4.6, which is not extremely elevated.

Additionally, Wood may be betting that, once consumers’ pent-up demand for experiences eases, they will resume spending more money on goods again. Such a development would likely greatly improve the financial results of many e-commerce companies, including those of Shopify.

SHOP Stock: Reported Layoffs and an Earnings Miss

According to The Wall Street Journal, Shopify is dismissing 1,000 of its employees, representing 10% of its workers. In a memo, the company’s CEO, Tobi Latke, blamed the layoffs on a resumption of pre-pandemic shopping trends, along with a reduction of e-commerce purchases, the WSJ stated.

Earlier today, the company reported that its second-quarter earnings per share, excluding some items, had come in at negative three cents, versus analysts’ average estimate of six cents. Its top line climbed 17% year-over-year, to $1.3 billion, but its Q2 sales were still $30 million below analysts’ average outlook.

Shopify noted that, during the rest of the year, it expects its gross merchandise volume, or GMV, to be “impacted by persistent inflation.” However, the company still anticipates that its GMV “will continue to outperform the broader retail market in the second half of 2022.”

SHOP stock is down 21% in the last three months, and the shares have tumbled 76% so far this year.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2022/07/cathie-wood-bought-the-dip-on-shop-stock-heres-why/.

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