Shopify (TSX:SHOP) stock is like the frog of the stock market. It generally leapfrogs, jumping 8-10% on news. Since the U.S. elections on November 5, the stock has jumped 35%, with more jump in the cards. Is this jump because of the election outcome, the holiday season, or the better-than-expected earnings? Well, it was all three combined. Hence, Shopify is a stock you could consider buying like there is no tomorrow.
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Three reasons to buy Shopify for the short-term
Shopify stock has a 10% U.S. e-commerce market share, so the outcome of the U.S. elections matters.
Firstly, Donald Trump’s victory has raised hopes of a dip in corporate tax and growth in U.S. jobs that could boost consumer demand. These expectations set the stock market in a bullish tone.
Secondly, Shopify reported better-than-expected revenue and a higher net profit in the third quarter, adding to the bullishness.
And lastly, Shopify is a seasonal stock, and the holiday season has begun. Black Friday is one of its best days for sales, and the fourth quarter is when it earns 38-40% of its annual sales. In most years, good holiday season rallies have shown a surge of 50-70% starting from October and running to February. Even though Shopify stock has already rallied 35%, there is still more upside till January 2025. You can buy into the rally now and sell it in January for a chance at a 30-50% gain.
Three reasons to buy Shopify for long term
Shopify is a next-gen alternative to Amazon
If you are considering investing for the long term, you could consider buying Shopify stock in March when the share price falls due to seasonal weakness. Make it a strategy to buy Shopify stock between March and June and August and October to buy it at attractive valuations.
But if this seasonality persists, why buy the stock for the long term? Here’s why.
Shopify is the alternative to Amazon, which has given merchants another way to connect directly with consumers rather than using Amazon as the middleman. Remember the era of Amazon (2010-2020) when retailers and brands were happy selling on an online marketplace for the convenience and reach it offered? However, Amazon gradually started cannibalizing its products by using sales data and launching cheaper alternatives of the most sold items.
While Amazon has made e-commerce a household name, we are in an era that needs e-commerce 2.0, where a seller in Australia can easily sell to a buyer in India. At the same time, the seller wants to create its brand name by building social media content and converting followers and videos into transactions. This individuality is what Shopify offers.
AI-led growth
Shopify has been at the forefront of adopting new technologies. It rolled out its artificial intelligence (AI) assistant, Sidekick, to more merchants. Sidekick assists merchants in accessing sales reports, studying consumer behaviour data, and setting up discount codes. AI enhances targeted sales, improving efficiency with higher lead conversion.
Profitability on cards
On the fundamentals front, Shopify is focusing on profits. Since the first profits during the pandemic, Shopify has restructured its business and sold its logistics business to remain asset-light. It has reached a scale that offers stable revenue growth and profits. Shopify has reported positive operating profit in the last five consecutive years. The company continues to focus on sustainable revenue and profit growth.
Its valuation will grow as it scales and give you good returns in the long term, provided you remain opportunistic and buy only in the dip.
The retail space is evolving. Shopify is catering to retailers offline with its point-of-sale (POS) system, online, and internationally. It is scaling not only in terms of merchant volumes but also in terms of variety.
Those who invested in Shopify five years ago earned 256% in capital appreciation, and those who invested two years ago earned 200%. While there is no special bonus for staying invested for the long term, buying into multiple dips could help you build a good share count.
