After a spectacular holiday season, Shopify (TSX:SHOP) stock is showing signs of correction, falling almost 6% in the first two days of 2024. Investors are booking profits at the start of the financial year, as this profit will be taxed in April 2025. Since the U.S. Fed paused interest rate hikes and hinted at rate cuts in 2024, investors have been rebalancing their portfolios from bonds to equities.
The prolonged 5% interest rate strained the finances of Canadians and slowed consumption and growth. At times like these, investors exit overbought growth stocks and instead buy oversold value stocks with significant growth potential. Within the tech space, while Shopify stock ballooned, payments platform Nuvei’s (TSX:NVEI) stock saw a partial recovery from its August dip.
Should you sell stocks of the $125 billion valuation Shopify for the $4.6 billion-valued Nuvei?
Is now a good time to sell Shopify stock?
Looking at the numbers and valuation, the Santa Clause rally of Shopify in the last two months of 2023 overvalued the e-commerce stock. Its 76% dip in the 2022 tech stock meltdown is still fresh in investors’ minds. There was a good reason for the dip.
Shopify’s 2021 pandemic profits of $2.9 billion had reversed into losses of $3.5 billion in 2022. In 2023, the company’s revenue growth was normal. However, it had narrowed its losses to over $500 million. But would you be willing to pay $14 for every $1 of sale per share, or $83 for every $1 of earnings per share? And mind you, Shopify expects to sustain mid-20s revenue growth.
If Shopify maintains 25% revenue growth, it will take 13 years for the company to reach $14 in sales per share. The price-to-sales (14x) and forward price-to-earnings (83x) are overvalued. Moreover, Shopify doesn’t have any ace up its sleeves that could suddenly boost its earnings.
In addition, the first quarter is seasonally weak for Shopify. It reports a sequential decline in sales and probably a loss during the quarter, which is reflected in the stock price too.
All these signs hint that you may not get such high valuations for years if the market were to correct Shopify’s stock price as per its fundamentals. Now is a good time to sell the stock and book profits while the stock still trades above $90.
Instead, you can consider buying a magnificent tech stock with future growth potential.
Why buy this magnificent tech stock?
Like Shopify, Nuvei also enjoyed a Santa Clause rally during the holiday season as payment volume from e-commerce boosted its revenue. Nuvei stock jumped 80% in the last two months of 2023. However, its valuation is still reasonable at a 3.2x price-to-sales ratio and 11x price-to-earnings ratio. While the payments platform is still making losses, it has two secular trends that could drive growth.
Firstly, Nuvei allows payments in crypto coins. If the crypto bubble returns, Nuvei will benefit from high-volume crypto transactions. Secondly, Nuvei has entered enterprise payment solutions through the Paya acquisition. Big names like Microsoft have opted for the Nuvei platform to accept subscription payments in select countries. Microsoft could give Nuvei the exposure it needs to attract other big names to adopt the Nuvei platform.
You may not want to join the race at the last minute and miss the early mover advantage. Nuvei has left short seller woes behind and is heading headstrong into a future full of growth potential. Since it is a small company, it has ample market share to tap. While Nuvei may not be the top choice in the payments platform space now, it is making its place in the sector.
It is time to rebalance your portfolio and reap the returns of your investments.
