Heading into April, stocks appear to be stabilizing after weeks of losses. While the markets are still down for the year, the extreme volatility we saw in the early weeks of the COVID-19 outbreak seems to be abating. Last week, the TSX rose 1.29%, with only moderate daily swings along the way. That’s significantly better than the two preceding weeks.
However, not all stocks are behaving the same way. Some are bouncing back, while others are just now beginning their descent. Stocks in that latter category may be undervalued at today’s prices.
In this article, I’ll be exploring one TSX stock that has returned more than 1,000% in the last five years that just went on sale this past Thursday.
Shopify Inc (TSX:SHOP)(NYSE:SHOP) is Canada’s largest e-commerce company. It has been a darling of the TSX since 2015, when it went public in a wildly successful offering. On its first day of trading, it closed at double its offering price. Since then, the gains have only continued: to date, SHOP is up about 1,343%.
For the most part, SHOP has held its own through the COVID-19 market crash. Its peak closing price was $718.66, on February 19. It slid 37% to a low of $458, then climbed to $634. At that point it was down only 11.3% from its all-time high, putting it way ahead of the TSX.
However, shortly afterward, Shopify executives put out a statement suspending earnings guidance for 2020. After that, the stock fell 13.4% in one day. As of this writing, it traded at $504 — a steep discount from its pre-crisis level.
Likely impact of COVID-19
It’s difficult to gauge the effects of COVID-19 on a company like Shopify. Online vendors should be able to operate normally during the pandemic, which would give them an edge over traditional retailers. However, if people remain out of work for prolonged periods, online retailers could see lost sales as well.
So far, the response we’re seeing from Shopify is mixed. On April 1, the company released a business update that contained some good news and some concerning signs.
The good news was that the company saw brick and mortar retailers doing more online sales–a boon to an e-commerce company like Shopify. The concerning signs included an extended free trial and merchants using discounts more than usual.
These indicate that merchants may be struggling to sell at their standard prices, requiring extra help from Shopify to keep operating.
Will the stock bounce back?
It’s difficult to say whether SHOP will ever bounce back to its all-time highs. The stock was always expensive, and it still is today. However, all signs point to its Q1 earnings being better than those of many other companies. As Shopify itself reported, the closure of brick and mortar stores is good for online platforms.
In the short term, that should benefit the company–whose business model is based on taking a cut of online sales. If the pandemic continues long term, however, the decline in discretionary spending will hit the company in the pocketbook.