Days like yesterday are a good reminder of why you should always keep a diversified portfolio. Shopify (TSX:SHOP)(NYSE:SHOP) has been one of the biggest gainers this year. One of its brightest moments was being named as the top stock on the 2020 TSX30 Rankings. However, on Monday, Shopify opened more than 5% down from the previous week’s close and continued to fall even further. What happened?
What is causing this decline?
Early Monday morning, Pfizer announced preliminary results regarding its COVID-19 vaccine. The company reported that the vaccine may effectively prevent the illness in up to 90% of cases. It was reported that this early study examined 94 infectious cases from a total enrollment of 44,000 from individuals in the United States and five other countries.
This does not mean, however, that a vaccine is imminent. Many more trials and further study need to be conducted, but the progress is promising. In light of this news, investors shifted money out of work-from-home stocks, many of which have seen incredible runs this year, and into recovery stocks. Companies such as Air Canada (+27%) and Cineplex (+36%) were among the list of beneficiaries.
Should Shopify shareholders be worried?
Shopify continues to be one of the leaders in the surging ecommerce market. Although a vaccine in the not-too-distant future may affect its stock in the interim, investors should remember the reasons they got into the stock in the first place.
Shopify leads all English-speaking countries as the premier online store builder website. The company also continues to post incredible financials. Its latest earnings report announced that Q3 revenue was $767.4 million this year — an increase of 96% on the year prior. In terms of recurring revenue, Shopify reported $74.4 million for the previous quarter. Since Q3 2015, the company has been able to grow its monthly recurring revenue at a compound annual growth rate of 47%.
Shopify also continues to diversify out of the e-commerce space and into other growing industries. Earlier this year, the company released its first original series, I Quit, which premiered on Discovery. Shopify has also hinted at dabbling into e-sports through its hiring of former Team Liquid player, Dario. Clearly, the company has a lot of ideas floating around and is still focused on growth.
What to look for next
Shopify stock may continue to be volatile, as many catalysts emerge outside of the tech sector. With the upcoming Biden presidency, renewable energy and cannabis stocks may continue to surge. Meanwhile, airlines, REITs, and other recovery stocks should continue to see a large influx of funds coming from institutional investors as vaccine hopes continue to emerge.
I do not see the drastic fall by Shopify on Monday as an issue. It is not based on any fundamental change within the company. Shopify’s last earnings call was one of the more impressive earnings reports this month and is an excellent reminder that e-commerce is here to stay. Shopify stock has been a big winner since its IPO, and if you were lucky enough to grab some shares then, you would be sitting very nice now. I am confident that the growth story still holds.
