Shopify Stock Plunged 21% Last Week: Buy or Bail?

Shopify (TSX:SHOP) stock has been hurting after its earnings as management cautions on its coming Q2.

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Shopify (TSX:SHOP) stock just came off a rough week, with shares sinking around 19% after the release of some rather disappointing quarterly results. Though investors did not seem at all impressed (the post-earnings reaction seemed to suggest some investors were panicking just a little bit), I didn’t think the numbers were brutal — not in the slightest. Believe it or not, Shopify actually beat earnings estimates. But shares flopped anyway as management cautioned about its coming second quarter.

In any case, the stock was still somewhat expensive, and expectations were simply too high going into the latest number, especially given plenty of macro headwinds that are still out there.

Though the bull market in stocks may suggest investors are upbeat about where economic growth goes from here. In any case, the going isn’t cleared yet, and until it is, investors will need to brace themselves for big bumps in the road. As it stands, shares of SHOP are now sitting down just over 21% in the past week.

Shopify stock back at $80: Is this a buying opportunity?

With SHOP stock going for $80 and change per share, I view the dip as potentially intriguing for brave investors who still believe in the firm but are willing to forgive it for having more than its fair share of stumbles. As a high-flying growth company, the stock is bound to be an extreme mover during earnings season. Just as the stock could pole-vault by a high double-digit percent, shares could also stumble by similar magnitudes.

With shares having shed close to a third of their value off February 2024 highs, it makes a ton of sense to revisit the name and ask yourself, “Has anything fundamental changed about the long-term growth story?”

I’d argue that nothing major has changed about Shopify, with shares now rapidly on the retreat. That said, there’s really no telling how long this dip can go. Though the second quarter will probably require investors to revisit the drawing board (logistics business sales will take away from growth), I still believe in the multi-year growth thesis. With generative artificial intelligence technology thrown into the mix, I’d argue there’s a high chance this recent plunge could prove a great time to be a net buyer.

Of course, you’re going to have to face the pain and negative momentum head-on. For many new investors, that’s just too scary to do. Though I’m not against waiting for the dust to settle, I’d prefer going for more of a dollar-cost averaging (DCA) approach. Think of it as slowly moving into the shallow end of the wave pool so you have a far lower risk of drowning once the tides begin to get a bit rougher.

The Foolish bottom line on Shopify stock

Shopify stock is no stranger to volatility. The recent quarterly beat was good, but investors were more concerned about the pains to come. Now that many will expect a bit less from the next quarter, shares are less risky than they were at more than $100 per share.

When you sign up for Shopify, you’re getting impressive growth prospects and visionary leaders. However, you’re also signing up for wild swings to the magnitude of 30% or more every so often. Shopify is still one of the country’s top innovators, but unless you’re willing to embrace a rough patch here and there, perhaps the stock is not right for you.

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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