Is Shopify Stock a Buy, Sell, or Hold?

Down close to 60% from all-time highs, Shopify stock trades at a significant discount to consensus price target estimates.

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Shopping and e-commerce

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Shares of Shopify (TSX:SHOP) went public roughly nine years back and the Canadian tech stock has since returned an emphatic 2,920% since its initial public offering (IPO). Despite these outsized gains, Shopify stock trades over 55% below all-time highs, allowing you to buy the dip.

Let’s see if Shopify should be part of your equity portfolio in 2024.

An overview of Shopify

Valued at a market cap of US$88 billion, Shopify is among the largest companies on the TSX. It is among the leading e-commerce platforms globally, providing the essential infrastructure for merchants to set up an online presence. Basically, Shopify offers a portfolio of solutions that allows companies to start, scale, market, and run a retail business.

The e-commerce giant is focused on delivering a better shopping experience for consumers online and offline. It powers millions of businesses in 175 countries and is trusted by billion-dollar brands such as Netflix and Mattel.

Can Shopify stock recover in 2024?

Similar to other growth stocks, Shopify was pummeled during the bear market of 2022. Investors were worried about Shopify’s slowing revenue growth and narrowing profit margins amid an uncertain and challenging macro environment.

For instance, Shopify increased sales by 86% year over year to US$2.9 billion in 2020, while the top line rose by more than 50% to US$4.6 billion in 2021. However, in the last two years, Shopify’s sales grew by 23.6% annually which disappointed Wall Street.

Alternatively, Shopify continues to grow at an enviable pace and increased sales by 23% year over year in the fourth quarter (Q4) of 2023. The company also exited the low-margin logistics business to boost profit margins and shore up the balance sheet. If we adjust for the sales of the logistics business, revenue growth stood at 30% in Q4.

Shopify expands AI portfolio

Shopify continues to expand its portfolio of products and solutions, which should drive engagement rates and spending higher on its platform. For example, in 2023, it launched a slew of artificial intelligence (AI)-powered products that include Shopify Magic, a suite of AI-enabled features integrated across the Shopify platform.

It also introduced Sidekick, an AI-enabled commerce assistant that allows merchants to leverage AI and improve productivity and workflows. Moreover, Shopify rolled out an AI shopping assistant that creates a personalized shopping experience for consumers by serving up product recommendations.

What’s next for Shopify stock?

Compared to e-commerce peers such as Etsy, Shopify is much further along its cost-cutting program, which has lifted investor confidence. Shopify is now on track to report consistent profit margins, as it ended Q4 of 2023 with a cash flow margin of 13%.

Analysts tracking Shopify expect the company’s adjusted earnings to grow by almost 60% annually in the next five years. Given Shopify reported earnings of US$0.73 per share in 2023, it should end 2028 with earnings per share of US$7.5 per share. If SHOP stock is priced at 30 times forward earnings, it should trade at US$225 in April 2028, indicating an upside potential of 230% from current levels.

Analysts remain bullish on Shopify stock and expect shares to surge by more than 20% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Etsy and Netflix. The Motley Fool has a disclosure policy.

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