Should Investors Consider Buying, Selling, or Holding Shopify Shares in 2025?
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In the e-commerce arena, Shopify (SHOP 2.83%) has made a name for itself as a powerhouse contender, trailing only Amazon in the U.S. This savvy platform, renowned for its straightforward user interface and extensive ecosystem, has managed to break away from the competition.
While Shopify's shares have moderately climbed in the past year, they've soared an astounding 300% from their 2022 bear market lows. Despite these impressive gains, the stock still sells at a whopping 40% discount from its all-time high set in 2021. This begs the question, is Shopify stock a buy, hold, or sell? Let's delve into the intricacies of this influential e-commerce giant.
Shopify's Recent Evolution
Shopify has overcome past missteps, evolving into a thriving force in the digital commerce sector. Its decision to develop an ecosystem of services for online merchants has mainly benefited the company. Add-ons such as payment services, online marketing, and sales tracking have enabled Shopify to generate lucrative revenue from an already expansive customer base. In fact, a staggering 72% of Shopify's revenue in the first nine months of 2024 stemmed from its merchant services segment.
However, Shopify may have ventured too far with its Shopify Fulfillment Network (SFN). This foray into fulfillment and shipping, a domain outside of its core software business, resulted in substantial fixed costs and made Shopify a net lossmaker. After recognizing the impact on the business as a whole, Shopify sold the SFN, leaving it in the capable hands of Flexport. This strategic move allows Shopify customers to enjoy fulfillment services without hindering the company's return to profitability.
Moreover, the growth outlook for the e-commerce industry remains robust. Per Grand View Research, a promising compound annual growth rate (CAGR) of 19% is projected for this sector through 2030, hinting at bright prospects for Shopify's revenue and, by extension, its stock.
Adjusting Shopify's Financials
Despite the hefty discount, Shopify's stock trades at higher valuation metrics than before. The stock's growth rate has notably decelerated over the last decade, complicating its recovery. In the first nine months of 2024, Shopify's $6.1 billion in revenue swelled a respectable 23% year-over-year. Although impressive, this pace pales in comparison to its 47% revenue growth rate in the first three quarters of 2019.
Despite the slowdown, Shopify's fiscal position has improved drastically. In the same timeframe, the company posted a substantial $726 million net income, marking a dramatic shift from the $525 million loss during the corresponding year-ago period. Furthermore, analysts anticipate a 23% revenue growth rate in 2025, potentially generating greater profit growth.
The P/E ratio for Shopify lingers at 97, and even its P/S ratio remains at a relatively high 16 times revenue. However, historical precedent indicates that Amazon consistently traded at higher P/E ratios during its growth phase, potentially signaling that Shopify's earnings multiple could sustain such levels. Moreover, Shopify stock has often exchanged hands at multiples of 40 times sales during the pandemic, implying that its sales multiple is still substantially lower than its record highs. This suggests that improving financials and expanding multiples could further fuel Shopify stock's growth in the near future.
Should You Invest In Shopify Stock?
Considering the developments in Shopify's business and financials, its stock remains an attractive buy option. New investors may want to implement a dollar-cost averaging strategy due to rising valuations and the moderated growth rate demonstrated in recent years.
Shopify has solidified its status as an influential online shopping platform, both domestically and globally. The e-commerce industry's continued growth over the next decade is likely to yield favorable results for investors, potentially propelling Shopify stock back to its record highs and beyond.
In terms of finance and investing, Shopify's attractive valuations and improvement in fiscal position could make it an appealing investment opportunity for new investors, who might consider implementing a dollar-cost averaging strategy. Despite the moderated growth rate in recent years, the robust growth outlook for the e-commerce industry, with a projected CAGR of 19% through 2030, suggests promising prospects for Shopify's revenue and stock.
Shopify's recent financials show a significant shift, with a $726 million net income in the first nine months of 2024, marking a significant improvement from the $525 million loss during the same period in the previous year. This improvement, combined with the potential for greater profit growth, could contribute to Shopify's stock growth in the near future.