The stock market has gone a little crazy recently following 40-year high levels of inflation, plans for a series of interest rate hikes by the Federal Reserve, and the global economic impacts of Russia’s war on Ukraine.
As a result, shares of many of the world’s most innovative companies in some of the fastest growing industries have been shattered. The market is currently moving on sentiment and does not care about fundamentals. As conservative investors, we can take advantage of the current situation by buying shares of financially sound companies that now have attractive valuations.
One of these companies, Shopify (STORE -2.28%), is a global e-commerce leader and enjoys a long growth track moving forward. Shares of the stock have fallen 75% in six months, despite a bumper exit in 2021 and promising growth prospects in the years ahead.
Is it time to go against the grain and buy shares of the e-commerce juggernaut today? Let’s take a closer look.
A deep dive into Shopify’s finances
Shopify stock has fallen nearly 30% since the release of disappointing first-quarter results on May 5. expectations. The weaker-than-expected result came after the company saw robust increases of 57% and 61% in sales and profit, respectively, in its 2021 fiscal year.
COVID-19 led to inflated growth in e-commerce stock as business owners relied on its services to grow and manage their businesses during shutdowns. The economic reopening, coupled with changes in consumer spending due to inflationary pressures, could now slow Shopify’s growth through 2022.
Total revenue was up 22% year-over-year in the first quarter, and while that’s significantly down from the 110% growth it saw a year ago, it doesn’t there is certainly nothing to panic about. Also, it’s not a fair comparison given that Q1 2021 metrics were overstated due to pandemic shutdowns and government stimulus measures. And because more merchants joined the platform in the first quarter, monthly recurring revenue (MRR) increased 17% to $105.2 million.
Let’s step back for a moment and look at the bigger picture. Shopify dominates nearly a third of the US e-commerce platform market, along with rivals WooCommerce Checkout and Wix.com serving as a distant runner-up. Fortunately, the company is leading the way in an industry with a $160 billion market potential and has only captured 3% of revenue opportunities.
The short-term noise surrounding Shopify’s business may govern its stock price performance for the foreseeable future, but it’s abundantly clear that the company has a huge avenue for long-term growth.
What about Shopify’s valuation?
The shares of the e-commerce titan are becoming more attractive day by day. The company is currently trading at less than 10 times its sales, which is a notable discount from its five-year average price multiple of 32.7.
Not only that, but Shopify’s valuation is the lowest it’s been in three years, even with the monstrous progress it’s made since the pandemic began. It’s not unreasonable for a stock’s valuation to contract when its growth declines, but given the company’s growth opportunities in the future, its stock price looks incredibly attractive at the moment.
Shopify is built for long-term success
It’s important not to lose sight of Shopify’s future potential amidst the current market chaos. As management indicated in its earnings call to close 2021, investors should expect the company to face growth challenges throughout the year. That said, the e-commerce leader is well-equipped to overcome short-term challenges and thrive in the long-term. Investors with long-term horizons shouldn’t hesitate to check out this stock today.