Should You Buy Shopify While it’s Below $110?

Despite witnessing strong gains in the last year, Shopify stock is still roughly 50% off its all-time highs.

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After more than doubling in value last year, Shopify (TSX:SHOP) has underperformed the broader market in 2024 so far. While SHOP stock has gone up by just 2% to $105.19 per share this year, the TSX Composite benchmark has advanced by 4.3%. Nonetheless, with its 71.4% gains in the last year Shopify stock is still on most growth investors’ radar.

But should you consider buying the e-commerce platform provider’s stock now while it’s trading below $110 per share? Let’s take a closer look at the company’s fundamentals and growth prospects to find out.

Shopify’s strengthening financials

Shopify’s financial performance has been outstanding in the last few years, as its revenue and gross profit have gone up significantly. In 2023, the Ottawa-headquartered tech company reported a 26.1% YoY (year-over-year) increase in its revenue to US$7.1 billion, driven by strong growth in both its subscription solutions and merchant solutions segments.

Its adjusted gross profit for the year also rose by 25% YoY to US$3.5 billion, reflecting consistent demand for its scalable and easy-to-use e-commerce services. These factors also helped Shopify achieve a record adjusted annual earnings of US$0.73 per share in 2023, also exceeding Street analysts’ expectations of US$0.69 per share. Improved profitability and consistent focus on minimizing costs also helped the company post a solid free cash flow margin of around 13% last year compared to just 3% in 2022.

It’s important to note that Shopify announced these upbeat 2023 financial results slightly over a month ago, on February 13. However, its share prices have dived by more than 12% since then. The recent weakness in SHOP stock could mainly be attributed to the ongoing macroeconomic uncertainties and speculation about the Bank of Canada and the U.S. Federal Reserve’s upcoming policy moves, which have kept tech investors on their toes in the last few weeks.

On the positive side, the recent declines could also be seen as an opportunity for long-term investors to buy this amazing Canadian growth stock at a big bargain, as it looks undervalued based on its latest results and long-term growth prospects.

Why Shopify stock is a great buy now

One key factor that makes Shopify’s long-term growth prospects so appealing is its ability to adapt to changing customer needs and preferences. The company has been constantly innovating and launching new products and services to attract more merchants to its platform.

For example, at the end of January 2024, Shopify announced more than 100 new features for its platform, positioning it as a compelling long-term investment. Significant enhancements in critical areas were at the heart of these updates, including increased focus on boosting conversion rates, expanding sales channels, enhancing marketing tools, and streamlining operational processes.

Notably, with these innovative updates, Shopify has expanded the product variant limit, enabling merchants to offer their customers a broader array of options. The platform has also optimized the speed and performance of online storefronts, contributing to improved conversion rates.

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Moreover, Shopify’s ability to continue posting strong financial results, even in a challenging macroeconomic environment, makes its stock look really attractive to buy now while it’s trading below $110 per share, roughly 50% lower from its all-time highs.

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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