After rallying for five months in a row, Shopify (TSX:SHOP) stock turned negative in August, losing nearly 9% of its value during the month. As of August 30, SHOP stock was still up by about 73% on a year-to-date basis, trading at $81.21 per share with a market cap of $104.1 billion.
Before discussing whether or not Shopify stock is a buy in September 2023, let’s take a closer look at some important factors that could be responsible for its recent dip.
Shopify stock
A spectacular recovery in Shopify stock took place in January 2023 after hopes of an improved economic outlook and the possibility of a slower pace of interest rate hikes boosted tech investors’ confidence. With its 39.5% gains in January, SHOP stock became one of the top-performing Canadian tech stocks for the month. The TSX Composite benchmark also rallied by 7.1% in the first month of 2023.
However, the fragility of the economic environment didn’t let Shopify stock’s gains last for very long, as a broader market correction drove the Canadian e-commerce platform provider’s share prices down by 14.3% in February.
The tech sector recovery gained steam again in March after early signs of cooling inflationary pressures made investors speculate that the U.S. and Canadian central banks might soon pause interest rate hikes. This external factor and its upbeat first-quarter financial results played important roles in driving SHOP stock upwards for the next few months, taking it up by about 59% from $56.18 per share at the end of February to $89.08 per share at the end of July 2023.
In August, the broader market saw another round of sharp downward correction due mainly to rising treasury bond yields amid fears that the Federal Reserve may further raise interest rates. This market weakness could be the primary reason why SHOP stock trended downward in August.
Is SHOP stock a buy in September?
Despite inflationary pressures and ongoing economic worries, Shopify’s financials continue to grow at a fast pace. In the second quarter of 2023, its revenue rose 30.8% YoY (year over year) to US$1.7 billion with the help of a 35% jump in its merchant solutions revenue and a 21% increase in subscription solutions revenue, exceeding analysts’ expectations. With this, the company posted US$0.14 per share in adjusted quarterly earnings, beating analysts’ estimates of US$0.05 per share by a huge margin.
In the third quarter, Shopify expects its YoY revenue growth to be at a low-20s percentage rate with further expansion in gross margin.
The Canadian e-commerce company recently announced that merchants on its platform, using Amazon’s fulfillment network, will soon be able to add the “Buy with Prime” app from its “app ecosystem directly into Shopify Checkout, processed by Shopify Payments.” I expect Shopify’s consistent focus on making its e-commerce platform more user-friendly and convenient for merchants to help it accelerate financial growth in the coming years, which should help its share prices soar.
Given that, recent declines in SHOP stock can be seen as an opportunity for long-term investors to buy this growth-oriented stock cheap.
