Shares of Shopify (TSX:SHOP) are witnessing a steep downward correction in September 2023 after delivering spectacular 60% positive returns in the previous six months. After losing nearly 13% of its value this month so far, SHOP stock now trades at $78.41 per share with nearly 66.8% year-to-date gains, taking its market cap to $100.6 billion.
Before highlighting why I find Shopify stock a screaming buy after the recent dip, let’s take a closer look at some important factors behind its recent price movement on the TSX.
Shopify stock’s recent price movement
After falling for three quarters in a row, SHOP stock staged a spectacular rally in the fourth quarter of 2022 as an improvement in its quarterly sales growth numbers seemingly impressed investors. Notably, the Canadian e-commerce platform provider’s sales rose by 21.6% YoY (year over year) in the September 2022 quarter, at a much higher rate than its sales growth of 15.7% in the previous quarter. This was one of the key reasons why its share prices jumped 26.4% in the final quarter of 2022.
The rally in SHOP stock further gained steam at the start of 2023, supported by a tech sector-wide recovery based on investors’ hopes that the central banks in Canada and the United States might soon pause interest rate hikes.
In addition, the release of the company’s better-than-expected fourth-quarter results boosted investors’ confidence. To give you an idea, Shopify’s sales growth rate improved further to 25.7% YoY in the December 2022 quarter despite facing currency headwinds. As a result, it reported an adjusted quarterly net profit of US$91 million, significantly better than Street analysts’ expectation of a US$15.6 million loss. These factors justify why SHOP stock popped by nearly 38% in the first quarter of 2023.
Shopify stock maintained this positive momentum in the coming months as well, with the help of the company’s continued efforts to boost profitability. For example, in June 2023, it completed the sale of its logistics businesses to its America-based supply chain partner, Flexport. In its second-quarter earnings conference call, Shopify’s management highlighted that the sale of its logistics business could eventually improve its gross margin by eliminating its logistics operating expenses and reducing headcount.
Why SHOP stock is a screaming Buy on the dip today
Despite its recent losses, SHOP stock continues to be among the top five performers on the Toronto Stock Exchange in 2023. In the second quarter this year, the company posted adjusted quarterly earnings of US$0.14 per share with the help of a 30.8% YoY jump in its sales, significantly better than Street’s earnings expectation of US$0.05 per share. Whether you look at the trends in the e-commerce giant’s financials or its recent efforts to accelerate growth, they all suggest that Shopify’s stock price rally might not be over yet.
Also, we shouldn’t forget that despite its roughly 67% year-to-date gains, SHOP stock is still off its all-time high levels posted in November 2021. Given its consistently improving fundamental outlook, the recent dips make Shopify one of the best Canadian stocks to buy for the long term on the TSX today.
