Up 39% in Q4, Is SHOP Stock a Buy Today?

Here’s why I find SHOP stock attractive to buy now, even after its strong year-to-date performance.

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With its spectacular 120% year-to-date gains, Shopify (TSX:SHOP) is continuing to be among the top-performing TSX Composite components of 2023. While another round of selloff in growth stocks drove SHOP stock downward by more than 13% in the third quarter, it has staged a handsome rally in the fourth quarter so far by rising 39.3%.

But could Shopify stock extend the ongoing rally and maintain this bullish momentum in 2024? Before discussing that let’s take a closer look at some key factors that drove its share prices up in 2023.

Shopify stock: The rally continues

Since 2020, Shopify stock has seen massive ups and downs. After the COVID-19-related worries started taking a big toll on investors’ sentiments, Shopify stock turned slightly negative in March 2020. However, as investors soon realized that restrictions on physical activity may boost the demand for Shopify’s e-commerce platform, SHOP stock started rallying, helping it end the year 2020 with outstanding 178.4% gains. While the company’s management continued to remind investors that the pandemic-driven demand for e-commerce services is temporary, its share prices still managed to end 2021 with healthy gains of 21.2%.

However, Shopify stock witnessed massive declines in the first half of 2022, falling from $174.17 per share to $40.22 per share, losing nearly 77% of its value in six months. These big declines in SHOP stock started after the U.S. Federal Reserve and the Bank of Canada vowed to increase interest rates to fight persistent inflationary pressures, leading to a stock market selloff, especially in high-flying growth stocks like Shopify.

Nonetheless, Shopify’s management seemingly acted in time by cutting its workforce to limit expenses and prepare itself for the post-pandemic era the U.S. e-commerce adoption growth rate continued to normalize. These proactive measures, along with consistent YoY (year-over-year) gains in its sales, seemingly helped the Canadian e-commerce platform provider regain investors’ confidence, which started a round of strong recovery in its share prices in the final quarter of 2022.

SHOP stock extended its rally in 2023 with growing expectations that the central banks will soon pause interest rate hikes. This rally in Shopify stock gained further steam in the fourth quarter of 2023 after the central banks in Canada and the United States hinted that rates could soon start easing, which could eventually spur economic growth.

Could the Shopify stock rally continue in 2024?

While external economic factors have been the primary reason for Shopify stock’s big ups and downs in recent years, the company’s long-term fundamental growth factors could be investors’ key focus going forward as the macroeconomic environment improves. In the first three quarters of 2023, Shopify’s sales jumped 27.2% YoY, which helped it post US$506 million in adjusted net profit.

Besides the strength in its financials, Shopify introduced several new features and partnerships aimed at enhancing the retail experience for both merchants and consumers. In the third quarter, the company launched the Retail Plan, a new pricing model for brick-and-mortar stores, and expanded the availability of its mobile point-of-sale system, POS Go, to the United Kingdom and Ireland. Also, Shopify optimized its checkout process for speed and conversion and partnered with various companies like Flexport and Faire for broader commerce solutions. I expect these initiatives, along with an improved economic outlook, to help SHOP strengthen its financials further in the years to come and help the stock continue rallying.

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.

The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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