Is Shopify a Buy, Sell, or Hold?

Shopify (TSX:SHOP) stock has been pulling back of late, opening up a window for dip buyers.

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Shopify (TSX:SHOP) stock is on the retreat again, now down just north of 17% from its 52-week highs of around $123 per share. Undoubtedly, it’s been quite a painful correction for many investors who got into the name this year. While the tech trade has continued to be hot year to date, SHOP stock has run into a handful of valuation concerns, at least according to some of the more bearish analysts covering the name.

Indeed, Shopify stock has been hit with a great deal of multiple expansion of late. But does that mean shares are overvalued and destined for sub-par returns in the medium to long term? Only time will tell. Regardless, value-conscious growth investors may have a lot more to love now that shares of the e-commerce firm are closer to that $100 mark.

Shopify stock: Are shares still expensive? Not if you believe in its AI talents

At around 14 times price-to-sales (P/S), Shopify stock is still quite expensive. However, given the company’s innovative abilities, a strong case could be made that the firm is still quite cheap for a growth company with a sizeable total addressable market (or TAM, for short).

Additionally, the company is getting into the realm of generative artificial intelligence (generative AI), a technology that Shopify is serious about innovating in. Though the chatbots and language models we’re most familiar with are a great place to get the answers to all of our top questions, it’s the AI tools (think of it as generative AI for business) that could hold considerable potential.

In short, long-term investors should not discount the company’s AI factor. It’s very much a firm with a spot in the race. Given the company’s knack for effectively and efficiently embracing new tech trends, I’d argue that management will help the firm make the most of the so-called AI boom, however long it lasts (I think it could produce value for many years, if not decades, to come).

Indeed, AI tools can not only help people at the office be even more productive, but they can help merchants delegate some tasks so that they can focus on what matters most: the products they’re looking to sell. Of course, AI tools aren’t the only reason that Shopify stock could be deserving of an even more premier multiple.

So, are shares of SHOP a buy on the latest dip?

If you’re looking to make a quick buck over the next few weeks or months, I’m not so sure Shopify stock will be as timely as you’d like. The recent pullback has been quite steep and could pave the way for a descent to even lower levels. That said, if you’re a long-term investor with a time horizon beyond five years, I’d argue that the latest correction is worth nibbling. Though I wouldn’t load up quite yet, I would add the stock to my watchlist and act as an incremental buyer over time.

As its App Store grows in size, so too will the company’s economic moat. As a high-tech ecosystem play, Shopify definitely stands out as a firm that could continue to surprise investors who shunned the name solely due to its double-digit P/S multiple. The company is the real deal. But in the meantime, it’s taking a bit of a breather. Nothing to panic over, in my humble opinion.

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.

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

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