After Wednesday’s post-Fed plunge, many of the already-cheap growth stocks are that much cheaper. Indeed, there’s no shortage of wonderful growth stocks as we head into the final week of March. Though higher-growth plays have been out of favour for most of the past year, I still think there’s value to be had in the names that now have really low expectations ahead of them.
A recession in Canada seems unavoidable. But that doesn’t mean growth stocks will continue to fall as headwinds reach a max point. If anything, a worse “storm” may be baked into share prices of the growthiest of stocks. Modest expectations alone can help power rallies even in the middle of recessions.
Ultimately, it’s all about how an individual company performs in the face of economic turmoil. Not all companies will succumb to the earnings-eroding pressures brought their way by Mr. Market. Even for the ones that do face growth and earnings pressures, it’s quite possible that the market may be overestimating the magnitude of pressures and their effect on a firm’s quarterly results.
Investing through a recession can separate great investors from the pack
Recessions seem like risky times to invest.
Volatility tends to climb through the roof and few things seem to be able to make money, at least over the near term. That said, recessions tend to be the time when investors are dealt the best “deals” by Mr. Market. Bear markets and sell-offs are when Mr. Market marks down stocks across the board due to a wide range of reasons. For investors who can extend their time horizons and think independently, there are opportunities to set themselves up for market-beating gains over the longer term.
Think Shopify (TSX:SHOP), a once-beloved growth stock that has slipped of late and may be an intriguing addition for new investors seeking gains for the next 15 years or more.
Shopify stock: Hard times ahead, but the long-term vision is still intact
Shopify stock has turned in such a painful way. For investors who bought too late, Shopify seems like a name to ditch. At $61 and change per share, though, I do view Shopify stock as one of the better Canadian growth stocks for the next decade. E-commerce is taking a break as the economy cools from the winds of high-interest rates.
Once the recession comes and goes, e-commerce could easily enjoy another leg higher. Shopify may be one of the e-commerce market’s top dogs, even at these depths. But there’s still a lot of total addressable market share to take. And Shopify is not ready to pullback on innovation, even if it’s forced to engage in mass layoffs.
Shopify overhired during the early days of the pandemic-fuelled tech boom. However, most companies did. As such, I don’t think Shopify should be punished for following the script of many other innovators that got overly enthused.
Up ahead, Shopify could make a big splash in payments with Shop Pay. The payments platform could really flex its muscles come the next economic expansion. Further, Shopify is wheeling and dealing with the hopes of forming a foundation that will propel it once times are good again.
Bottom line for growth stock investors
The high-flying days of e-commerce are far from over. Though digital retail could slump for another few quarters (or even years), I’m confident Shopify will be a much stronger version of itself in 15 years from now.
I don’t expect a swift return to all-time highs anytime soon. But I do think Shopify can deliver market-beating results if management plays its cards right and continues to invest in the right areas.
At writing, shares go for a palatable 9.8 times price-to-sales. For a company that’s innovating like few others in e-commerce, I’d argue shares are a relative bargain right now.
