Shopify (TSX:SHOP) Going Down: Should You Buy on the Dip?

Shopify Inc. continues its downward trajectory, but it could still be an excellent investment to become a wealthier investor.

| More on:
Shopping and e-commerce

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Shopify (TSX:SHOP)(NYSE:SHOP) has been one of the best-performing stocks to ever trade on the TSX in terms of its growth. Since its initial public offering in 2015, the stock has gained over 4,000%. Not many stocks can boast the same kind of rapid growth.

Shopify has been on a downward trend in recent weeks. The stock has fallen more than 25% in the last month. Despite its setbacks on the stock market, it remains one of the strongest performers on the TSX. The company continues to play an important role in tomorrow’s society, and it has garnered significant institutional investments over the years.

So, why is Shopify declining right now, and is it worth investing on the dip?

An expected deceleration

The primary reason that could be attributed to its decline could be Shopify’s deceleration in revenue growth. Revenue growth deceleration is when a company’s revenues are increasing, but the rate of growth is slowing down.

Shopify’s revenue growth has been slowing down in recent years. While it continues to make more money, its revenue-growth rate might be falling short of investor expectations. If its deceleration is extreme enough, any company’s stock can experience declining prices. That is what is happening with Shopify right now.

Is the slower growth going to be a problem?

This kind of slowdown in its revenue growth is not new. Shopify grew its revenue at 90% a year before it went public. The company’s growth rate dwindled down to 45% in the years following its IPO, but 45% is still a strong figure. Shopify gradually reclaimed a 90% revenue-growth rate, going almost double in the second and third quarters of 2020.

However, the revenue growth was primarily fueled by the fallout from COVID-19. The pandemic forced many retailers to shut their physical stores down and open online stores. Consumers flocked to online stores — something that Shopify holds the biggest infrastructure for.

The pandemic is bound to end at some point. When it does, the main catalyst that fueled Shopify’s revenue growth rate during the pandemic will be gone. The company is already aware of this, and it has already warned investors to expect slower growth moving forward. As far as the company’s preparedness for the revenue growth slowdown is concerned, Shopify is already well aware and well positioned.

Foolish takeaway

Shopify might not produce the kind of returns in the future with everything adding up as it has in the past. The stock has had an incredible run in its six years as a publicly traded company, and it has doubled in value each year except for one.

While Shopify might not become a trillion-dollar company in a few years, the stock can eventually enter the trillion-dollar market cap. The stock could be worth owning, and the current dip makes for an interesting entry point for investors to consider for long-term wealth growth.

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.

Fool contributor Adam Othman owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify.

More on Investing

Hands holding trophy cup on sky background
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs
Investing

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting
Investing

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »