Top Canadian stocks, including Shopify (TSX:SHOP), recovered swiftly at the beginning of this year. However, Shopify soon erased most of its gains, as its near-term sales outlook and ongoing pressure on margins didn’t sit well with investors.
Shopify stock is down about 20% since it announced its Q4 financials on February 15. Meanwhile, the stock is down about 28% in one year. The recent pullback in Shopify stock indicates that the negatives are already priced in, and the slide could be over. But before I dig deeper, let’s look at the factors that make Shopify an attractive long-term stock.
Shopify is a top long-term stock
Shopify offers omnichannel commerce-enabling tools. The e-commerce company saw remarkable growth during the pandemic, which accelerated the demand for its offerings. However, the economic reopening, macro headwinds, and tough year-over-year comparisons weighed on technology stocks, including Shopify.
While macro headwinds could limit the recovery in this Canadian large-cap stock in the short term, the growing penetration of e-commerce, Shopify’s increasing market share in the overall U.S. retail sales, new product launches, expansion of fulfillment services, and accelerated shift towards omnichannel selling models bode well for long-term growth.
Why the slide in Shopify could be over
The resiliency of Shopify’s business model, easing inflation, and the macro environment potentially not being as bad as expected support my bullish outlook on Shopify stock. Furthermore, Shopify’s innovative product launches and growing adoption among merchants are a big positive.
It’s worth highlighting that Shopify’s revenue increased by 21% in 2022. This looks incredible, as it came on top of 57% and 85% growth in 2021 and 2020, respectively. Shopify’s growing revenue base, despite tough comparisons and a weak macro environment, shows the resiliency of its business model.
Furthermore, its GMV (Gross Merchandise Volume) growth and increased penetration rate of Shopify Payments augur well for growth. Shopify’s GMV increased by 12% in 2022. Meanwhile, 54% of its GMV was processed through Shopify Payments compared to 49% in 2021.
The increased penetration of Shopify Payments shows higher adoption of its offerings among global merchants and the growing footprint of its POS (point-of-sale) hardware in brick-and-mortar stores.
While its Payments solutions witnessed solid growth, more merchants accepted its Capital offerings. Meanwhile, it expanded the Shopify Markets offerings to 200 countries.
Shopify’s innovative products, focus on strengthening fulfillment, benefits from delivery, and growing GMV and Payments penetration suggests that Shopify is well positioned to deliver strong growth, which will drive its stock price higher.
The resiliency of Shopify’s business and expansion of marketing and sales channels bode well for growth. Shopify is adding more merchants to its platform, launching new products, and growing its geographical footprint. Also, as more and more businesses modernize their point-of-sale software, Shopify is poised to benefit from its offline offerings.
Shopify’s business remains strong while its market share is growing. Further, its stock looks attractive on the valuation front. Its next 12-month enterprise value-to-sales) multiple of 8.5 is significantly lower than the historical average, indicating limited downside and strong upside potential in the long term.