High-growth tech stocks continue to remain volatile in 2022, as investors are concerned over a slew of macroeconomic headwinds that include rising interest rates, inflation, supply chain disruptions, a global recession, and geopolitical tensions. One of Canada’s fastest-growing companies since its initial public offering in 2015, Shopify (TSX:SHOP) has burnt significant investor wealth in the last 12 months.
Currently, SHOP’s stock price is down 80% from all-time highs, valuing the Canadian e-commerce company at a market cap of $56.44 billion. At its peak, Shopify was the largest company trading on the TSX in November 2021.
Despite the ongoing selloff in Canadian tech stocks, Shopify has returned a staggering 1,150% to investors since its initial public offering more than seven years back. But historical returns don’t matter much to investors. So, let’s see if Shopify stock remains a top contrarian bet at its depressed valuation in the fourth quarter of 2022.
Shopify fulfillment centre will drive future growth
After a pandemic-fueled period that allowed e-commerce platforms, including Shopify, to thrive, top line growth for most companies has decelerated at an alarming pace in 2022. Further, as governments paid out billions of dollars in federal support to individuals, families, and businesses, it resulted in an oversupply of money and red-hot inflation rates, thereby impacting consumer demand.
After Shopify’s sales rose from US$1.57 billion in 2019 to US$4.61 billion in 2021, its revenue grew by “just” 22% year over year to US$1.4 billion in the third quarter of 2022. It also reported an adjusted loss of US$30 million in the September quarter.
But the headwinds should ease over the next 12 months, allowing revenue growth to accelerate once again. Shopify is among the most popular e-commerce software platforms in the world, and based on gross merchandise volume (GMV), it is the second-largest e-commerce business south of the border.
Research reports estimate e-commerce sales in the United States will grow by 12% each year to US$1.7 trillion in 2026, providing Shopify with enough room to grow its top line.
Additionally, Shopify continues to expand its suite of products and services to cater to the needs of its merchant base of more than two million. In recent months it has allocated significant resources to build the Shopify Fulfillment Network, or SFN, which is an ecosystem of warehouses and last-mile delivery providers, thereby optimizing the supply chain process.
Shopify is looking to simplify various logistics stages for its merchant base, and the SFN is expected to gain significant traction by the end of 2023. The company claimed almost 80% of its merchants had used at least one service in the third quarter, as fulfilled orders grew by 450%.
Is SHOP stock a buy or a sell right now?
Analysts tracking Shopify expect the company’s sales to rise to $5.84 billion in 2022 and $7.8 billion in 2023. So, SHOP stock is priced at 7.2 times forward sales, which is quite steep for a company that is yet to post consistent profits. But it is also the lowest multiple for Shopify as a publicly listed entity.
Analysts remain bullish on Shopify and expect the stock price to more than double in the next 12 months.
