Shopify: Buy, Sell, or Hold?

Let’s dive into some of the catalysts and headwinds facing Shopify (TSX:SHOP), and whether this company can get back on its growth path.

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For investors seeking top growth stocks in this market, Shopify (TSX:SHOP) has remained a premier option to consider. The company’s previous growth rates have been impressive, and while growth has slowed, many long-term investors continue to hold onto shares of this Canada-based tech darling, for good reason.

Shopify is among the most dominant e-commerce platform providers, with a business model that’s worth considering. The company’s transaction-based fee model means that as more sellers join its network, and more transactions take place, the company should continue to see outsized top- and bottom-line growth.

Let’s dive into some of the key headwinds and catalysts behind this company moving forward.

E-commerce growth should remain strong

As more commerce takes place online, businesses will be forced to look at options like Shopify to accelerate into the future. The company’s business model aligns with strong secular trends that don’t show signs of slowing. Indeed, while pandemic comps were clearly hard to deal with, this is a space that’s returned to growth. In this regard, Shopify should benefit from future consistent growth in this space over time.

That said, if a recession is indeed around the corner, spending in all parts of the economy could slow. And while the secular tailwinds supporting a continued shift to e-commerce are likely to remain, lower absolute sales volumes across the economy could provide strong headwinds that could impact the company dearly.

Thus, I think the investing time horizon and expectations of where the economy is headed in the next few years are paramount to deciding whether this is a stock worth holding.

Growth remains intact

But regardless of where you think growth is headed moving forward, it’s clear Shopify’s past performance has been strong. The company’s 23% year-over-year revenue growth rate in Q1 of this year highlights the kind of growth many investors are after. Accordingly, if one expects the same tailwinds that have propelled this stock higher to remain in place, this is a stock that could have much more room to run from here.

Notably, Shopify’s merchant services solution rose in line with its top-line number to US$1.4 billion. The company’s subscription solutions revenue also surged by 34% year-over-year. Indeed, these high-margin segments of the company’s business are where many investors are focused, and they’re driving the majority of gains seen across this tech giant.

The verdict

Moving forward, I do expect to see some choppiness when it comes to Shopify. The company has grown to a size that’s going to make future hyper-growth rates difficult to achieve. Additionally, my base case is that we will see a recession over the next two years. So, for those with a near-term trading mentality, this likely isn’t the stock to own.

But for those with a longer-term investing time horizon, this is certainly a company I think makes sense to dollar cost average into over time. In my view, Shopify stock is a long-term buy at current levels, and a likely near-term hold here.

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 Chris MacDonald 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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