Shopify (TSX:SHOP) stock’s performance in the first half has been absolutely remarkable. The company turned a corner, and investors seem more than willing to get back into the name after the stock’s historical meltdown of more than 80%. Indeed, high rates are still working against high-tech innovators.
However, 2023 has been a year of efficiency for plenty of companies, Shopify included. Not only has Shopify trimmed its workforce, but it has also sold off logistics businesses. As artificial intelligence (AI) innovations work their magic across the broader economy, Shopify may be able to increase efficiencies further without compromising on the growth front.
Shopify stock runs into a bit of turbulence
For now, however, Shopify stock faces a potentially rough year ahead, with a Canadian recession that could further hit the consumer and ongoing rate increases.
In short, Shopify is a great e-tail company with many years of growth ahead of it. But over the near term, the stock could be vulnerable to a selloff. Given Shopify stock’s past record, the dips can be pretty sharp. So, unless you’re comfortable with catching falling knives, I’d take a rain check on the shares, especially as we move into September, a dreaded month for stocks.
As rates race higher, I’d look to growth companies that have strong balance sheets and the ability to grow earnings at a remarkable rate in the present.
Shares of Alimentation Couche-Tard could stay hot well into year’s end
Alimentation Couche-Tard (TSX:ATD) recently hit a fresh all-time high on Thursday, as shares surged past the $70 mark. Indeed, the remarkable pop came on a day when broader markets were in a huge funk. Couche was one of the few stocks in the green in what was a sea of red! For the month, Couche-Tard stock is up 5.6%. That’s a pretty decent August, despite the recent market-wide turbulence.
Looking ahead, I expect more of the same for Couche-Tard. The company continues to impress Bay Street, and I think it’ll continue to do well, as it takes earnings into overdrive. Further, the balance sheet is sound, with room for additional merger and acquisition opportunities for the year ahead. As macro headwinds strike the economy where it hurts, look for Couche to be able to get a good value for its money once it decides to acquire its next target.
Growth by acquisition is the name of the game for ATD. And nobody can do it quite as good as Couche-Tard’s management team.
At the time of writing, Couche-Tard stock trades at 17.11 times trailing price to earnings. That’s a multiple more indicative of a value play, rather than a high-momentum earnings grower that’s sitting at new highs! I think Mr. Market has it wrong.
As investors respect earnings and strong balance sheets over sales growth and trendy tech, I think ATD stock could find itself worth north of 20 times trailing price-to-earnings. That would be a fair multiple to pay for such a high-quality Canadian company that continues to impress even through the most trying of environments.
The Foolish bottom line for growth investors
You don’t need a front-row seat to hot trends like artificial intelligence to do well in this rocky market climate. Couche-Tard is a low-tech retailer that has a formula that works. As a mild recession hits, I find the stock could continue to beat the TSX Index by leaps and bounds.
