Up 57% From its 52-Week Low, Is Shopify Stock Still a Buy?

Shopify (TSX:SHOP) stock is up 57%, but the company fell earlier this year. What could happen as we head into first-quarter earnings?

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published April 29, 2024 8:30 pm EDT

| More on: SHOP

If you’ve been watching Shopify (TSX:SHOP) with bated breath over the last year or so, you’re certainly not alone. Shares of Shopify stock have reached all-time highs of $228 (adjusted for the stock split) and have fallen to lows not seen since they came on the market.

And yet, shares are now back up 57% since hitting 52-week lows, where they have remained. After hitting $123 per share, Shopify stock is back down to hovering near the three-digit range. So, is the stock still a buy?

A shopper makes purchases from an online store. — Image source: Getty Images

What happened?

There are a few reasons as to why Shopify stock has seen a bit of a slowdown in investor interest. First off, the tech sector and the overall market in general have experienced a correction since February 2024. This could be dragging down Shopify’s share price even if the company itself is performing well.

However, there continue to be fears over growth for shoplift stock. The company continues to need to demonstrate that it can maintain its growth trajectory, even after the pandemic boom.

What’s more, e-commerce is increasingly competitive. Shopify stock continues to experience many players that will be stiff competition — not just online retailers like Amazon, but big-box retailers like Walmart. So, is it up to it?

Into earnings

One way to see whether Shopify stock has what it takes is to look at earnings. Shopify stock bounced in share price after announcing earnings back in February. However, this was met with a drop in share price when the market calmed down.

Even so, this could easily happen again come earnings on May 8. We can also look at past earnings to see what the company needs to do to earn back some investor interest once more.

During the second quarter, gross merchandise volume (GMV) hit US$55 billion, with total revenue at US$1.7 billion. Monthly recurring revenue (MRR) also came in at US$139 million, with profit at US$835 million.

The third quarter saw GMV reach US$56.2 billion, with revenue steady at US$1.7 billion. MRR rose slightly to US$141 million, with gross profit at US$901 million. That was a small increase, but far better than many other earnings during the third quarter.

By the fourth quarter, GMV reached an incredible US$75.1 billion, with revenue at US$2.1 billion. MRR increased further to US$149 million, with gross profit hitting US$1.1 billion. It was an excellent year overall, so what’s next?

Looking ahead

This is where things could get interesting. The fourth quarter was excellent for Shopify stock, and the company achieved strong earnings across the board. The big question, then, is whether the stock can keep it up.

For the first quarter, Shopify stock expects revenue to increase at the low-20s percentage rate on a year-over-year basis. This would mean hitting at least US$1.8 billion in revenue. Further, free cash flow as a percentage of revenue should be in high single digits. This would mean at least US$91 million as well.

So, should Shopify stock beat these estimates, and it has historically, we could see another bump in share price — one that could send that share price over the $100 edge.