One of the biggest e-commerce stocks investors continue to focus on that trades on the TSX is Shopify (TSX:SHOP). The company has seen incredible volatility in recent years and remains more than 50% below its post-pandemic highs. A recent downturn in Shopify’s stock price has also signalled some bearish momentum may be building once again. Accordingly, it should be no surprise that there’s perhaps not as much fear of missing out when it comes to Shopify as there has been over the better part of the past year.
Of course, this is a company that has a stock chart that’s been mostly up and to the right since the middle of last year. Let’s dive into whether this momentum can be sustained, and if it’s really too late to invest in this e-commerce giant.
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Tailwinds abound for Shopify stock
Shopify’s overall business model is one I think could benefit from a number of secular tailwinds over time. Generating fees from transactions taking place within Shopify’s ecosystem, the company gains from overall growth in the e-commerce sector. So, for those bullish on this space, it’s an easy investing thesis to latch onto.
But there are other key catalysts I think investors are starting to hone in on. The company’s global expansion efforts are ramping up, and there are still plenty of markets to move into. The company’s overall penetration rate globally for e-commerce sales sits at around 0.5%, meaning there’s a much larger slice of the pie available, particularly as more companies around the world shift toward online retail.
The company’s stock price has reflected optimism (and pessimism at times) around these growth efforts. Ultimately, Shopify will be the one to determine whether the market is being overly optimistic or not about its prospects around the world.
Is now the right time to buy this stock?
Timing the market is generally a fool’s game, and it’s usually better to simply dollar cost average into positions over a longer period of time. If you think a given company in a given sector will continue to outperform, investing over a period of time can result in returns in a stock like Shopify. Putting the same amount each month into this stock over the past five years would have resulted in gains (despite the large drop since 2022).
Shopify’s revenue growth rate of around 26% and its strong bottom-line performance indicate this is a company increasingly focused on profitability. For those bullish on this trend, I think buying at current levels makes a lot of sense. Indeed, the recent dip in Shopify stock suggests there may be more upside than many think.
It’s my view that we may head into some rough waters in the coming quarters. The yield curve has been inverted forever, and when it dis-inverts, that’s likely to lead to some turmoil in some pocket of the market, that’s likely to spill over to the consumer. However, for those with a long enough investing time horizon, I think dollar cost averaging into a stock like this will pay off five or 10 years from now.
