SHOP Stock: Buy, Sell, or Hold?

Here’s why long-term investors may want to consider Shopify (TSX:SHOP) stock in this relatively overvalued market right now.

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Shopify (TSX:SHOP) stock has been showing a downward trend over the last month. However, as the price is showing signs of going back up, investors are in doubt whether to buy, hold, or sell this stock. 

Here are some factors that can help investors decide. 

Wide range of tools to enhance merchant experience

Shopify has recently released several new tools to drive merchant engagement across its platform. For instance, Shopify Magic will provide a wide array of AI-powered features to help merchants efficiently run their business operations. 

It can also source products from other brands present on the platform via Shopify Collective. This business-to-business solution also facilitates direct delivery to customers. Furthermore, the Shopify Marketplace Connect app will enable merchants to sell their products across other major marketplaces like Walmart, Amazon, eBay, and more. 

Shopify acquires a stake in Faire

In late September, Shopify announced the company invested in Faire, a multinational wholesale platform. This deal will help Shopify merchants easily find wholesale customers and increase their business prospects. It will also enable retailers to source products from the brands present on Faire’s platform. 

Faire has a large market in the United States and a fast-growing one in Europe. Therefore, this agreement will help the Canadian e-commerce giant increase its presence in both these markets and enhance its long-term growth prospects. 

Shopify insider stake rises by 81%

Another recent driver of interest in SHOP stock is some serious insider buying activity. In late September, Shopify Founder Tobias Lütke acquired US$10 million worth of shares. Accordingly, this purchase alone has driven 81% growth in insider stakes over the past year. Currently, Shopify insiders 6.3% of the company, which is impressive relative to most publicly traded tech stocks.

Indeed, high insider ownership is a great sign for individual investors. It shows that those closest to the company are optimistic about the organization’s future growth and believe that the stock is still undervalued. 

Strong performance in the second quarter

Shopify’s strong long-term growth trajectory appears to be intact. During the company’s most recent quarterly report released on Aug. 2, Shopify reported 17% gross merchandise volume (GMV) growth (to US$55 billion) and total revenue growth of 31% (to US$1.7 billion). I think it’s worth noting that Shopify was able to increase its revenue faster than its GMV, suggesting that the company’s share of the value that flows through its ecosystem is increasing.

The company’s margins and profitability outlook remain stern, driven by impressive growth in the company’s merchant solutions and subscriptions revenue divisions. These grew by 35% and 21%, respectively, on a year-over-year basis.

Bottom line

Given Shopify’s recent acquisitions, latest released tools and consistent financial growth, the company is poised for long-term growth. Additionally, there is a high level of insider ownership, indicating a positive stock outlook. 

It’s my view that SHOP stock remains a top option for long-term growth investors seeking relative value in this otherwise overvalued market right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Chris MacDonald has positions in The Motley Fool recommends, Shopify, Walmart, and eBay. The Motley Fool has a disclosure policy.

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