Should You Load Up on Shopify Stock?

Shopify (TSX:SHOP) stock could offer investors a huge opportunity with shares down from 52-week highs, but how risky is it?

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Shopify (TSX:SHOP), the darling of the e-commerce world, has been on quite a rollercoaster ride. From its initial public offering (IPO) in 2015, Shopify’s stock has seen meteoric rises and heart-stopping drops. Let’s dive into whether you should be loading up on Shopify stock based on its past performance.

But should you load up on Shopify stock? If you’re an investor who believes in the long-term potential of e-commerce and is willing to ride out some volatility, Shopify could be a worthy addition to your portfolio. Its innovative spirit, strong market position, and revenue growth are compelling. 

However, if you’re risk-averse or looking for immediate returns, you might want to proceed with caution. Always do your research and consider your investment horizon and risk tolerance. Let’s get into why.

Turbulent past

Despite reporting strong first-quarter (Q1) 2024 earnings with earnings per share (EPS) of $0.12, beating expectations, Shopify’s stock price has fallen from $123 to $90. The main culprit? A surprise US$273 million loss and concerns over profitability and operational challenges, such as the sale of its logistics business and workforce adjustments.

Shopify’s Q1 2024 earnings report was a mixed bag. On the positive side, the company reported EPS of US$0.12, which surpassed the consensus estimate of US$0.08. This beat indicates that Shopify managed to control costs better and increase profitability compared to analysts’ expectations. Additionally, Shopify’s revenue for Q1 2024 came in at $1.86 billion, slightly higher than the anticipated US$1.84 billion. This revenue growth shows that Shopify continues to attract more merchants and expand its services, a positive sign for long-term growth.

However, not all news was rosy. Shopify also reported a surprise US$273 million loss, which spooked investors and contributed to the stock’s decline from $123 to $90. This loss raises concerns about the company’s path to sustainable profitability and its ability to manage operational challenges effectively.

Expectations

Looking ahead, Shopify’s next earnings report is expected on August 7, 2024. Analysts have set a consensus EPS estimate of -US$0.18 for Q2 2024, a significant drop compared to the previous quarter’s positive earnings. This anticipated decline reflects ongoing challenges and potentially higher costs as Shopify invests in growth and innovation. Revenue for Q2 2024 is projected to be around US$2.07 billion, indicating continued top-line growth but also highlighting the pressure on margins.

Analysts have mixed feelings. Some see the recent pullback as a buying opportunity, citing the company’s strong competitive position and innovative platform. However, the cautious investor might be wary of the lowered growth expectations and operational challenges.

Even so, Shopify continues to innovate and form strategic partnerships, such as the recent collaboration with Target, which allows Shopify merchants to sell through Target’s digital marketplace. These moves enhance Shopify’s reach and provide new growth avenues. It also remains a leading player in the e-commerce space. Its platform is widely adopted, and its brand is strong, making it a resilient choice in the long run.

Looking ahead

Despite the recent hiccups, Shopify’s long-term growth potential remains solid. Shopify has been transparent about its ambitious plans. The company is investing heavily in innovation, partnerships, and expanding its platform capabilities. For instance, its recent collaboration with Target to allow Shopify merchants to sell on Target’s digital marketplace showcases its strategic initiatives to broaden its market reach and enhance merchant services. Additionally, Shopify’s focus on integrating artificial intelligence (AI) powered features and enhancing its logistics network aims to strengthen its competitive edge and support its merchant base.

As to numbers, analysts expect Shopify’s revenue to continue growing. For Q2 2024, the projected revenue is around $2.07 billion, indicating robust growth despite economic headwinds. The anticipated EPS for Q2 2024 is -$0.18, a stark contrast to the positive earnings in Q1 2024. This reflects the company’s ongoing investments and the associated costs. However, looking further ahead, analysts expect Shopify’s earnings to grow by 32.79% next year from $0.61 to $0.81 per share.

Bottom line

Investing in Shopify is akin to embarking on a thrilling adventure — filled with exciting innovations and strategic moves but also some unexpected twists and turns. But should you load up on Shopify stock? If you believe in the long-term potential of e-commerce and Shopify’s innovative strategies, this could be a golden opportunity, especially with the stock’s recent dip. However, if you’re concerned about short-term profitability and market volatility, you might want to tread carefully.

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 Amy Legate-Wolfe has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

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