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Air Canada (TSX:AC) vs. Shopify (TSX:SHOP): Will Demand Return to Pre-Pandemic Levels?

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Last year, the world saw an e-commerce frenzy. Shopify (TSX:SHOP)(NYSE:SHOP) emerged as a knight in shining armor for all retailers who had no choice but to serve their customers online. That said, airlines like Air Canada (TSX:AC) took a setback as even their most frequent flyers ditched them during the lockdown. 

Today in 2021, airline and e-commerce companies stand at crossroads. Both are asking the same question but with different intentions. Will demand return to pre-pandemic levels? The answer will determine where their stock price moves in 2021 and beyond.

While Shopify rode the strongest bulls rising over 200% in one year, Air Canada suffocated in the bear hug losing more than 55% of its value with no recovery in sight. The two stocks have now come to a standstill as investors are divided and waiting for directions ahead. 

The curious case of Shopify

Shopify attracted significant traffic from retailers. Even those retailers who were reluctant to open an online store like grocers and food companies turned to Shopify. Hence, its revenue doubled in the second and third quarter of 2020. It also witnessed record traffic on Black Friday and Cyber Monday, grossing $5.1 billion in transactions. 

This traffic and online shift were visible to everyone. Hence, Shopify was a stock of the year without a doubt. Investors flocked in and invested their benefits money they got from the government. Such bullishness sent the stock from a little below $500 before pandemic to $1,650 post-pandemic.

Before the pandemic, Shopify’s revenue growth rate was decelerating from 73% in 2017 to 47% in 2019. But post-pandemic, its revenue growth rate is likely to cross 70% in 2020. Now the question is, will it be able to maintain this growth rate, or 2021 will see a significant slowdown in revenue growth rate as the pandemic fever cools.

There is no doubt Shopify will grow its revenue as the e-commerce momentum is here to stay. It will also benefit as a better e-commerce alternative for retailers than Amazon that is misusing its monopoly. Amazon is using the sales data of third-party retailers to identify top-selling products. Then it manufactures cheaper copies of them and sells them at half the price under its AmazonBasics label, forcing many premium retailers to exit Amazon and choose Shopify.

But the risk is in Shopify’s high stock price of $1,490, which is 74 times its sales per share. It is this high valuation that makes even the bullish investors think twice before buying Shopify stock. 

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The mysterious case of Air Canada 

While Shopify’s high valuation is limiting its growth spree, Air Canada’s challenges are limiting recovery. The airline is suffering from blanket travel restrictions that are preventing people from flying. AC’s numerous attempts to earn revenue and reduce cash burn are in vain until these travel restrictions ease.

AC has halved its workforce, reduced its fleet size by a third, canceled orders for 22 planes, and converted some of the retired planes to freighters. The list is long. But none of these efforts could pull the stock from the $15 deep pit in which it fell in March 2020 from $50 pre-pandemic. It was only the vaccine news that brought some respite. This news sent the AC stock up 80% to $27 in November 2020.

The stock has corrected to $22 as the vaccine rollout brings its own challenges. Multiple vaccines have hit the market, but they have their side effects, and people are not willing to take the vaccine. Plus, the virus is mutating. All this is extending travel restrictions.

Moreover, the Justin Trudeau government is not giving any positive news around an airline-specific bailout. Airlines survived 2020 by making losses and burning cash. But they won’t be able to survive another year without making money.

Shopify versus Air Canada 

Both Shopify and AC stocks could see some correction once the government stops benefits, and people cash out their profits. In the event of another market crash in 2021, these stocks will see the biggest dips. 

I would suggest you add these stocks to your watch list; if you own them, book some profit now before everyone else moves to a sell mode. 

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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