Shopify (TSX:SHOP) stock became the ultimate poster stock most Canadians owned during the pandemic. The logic was simple: you buy the stock of the things around you, the ones that you use. However, the 2022 tech meltdown made many investors realize that even a strong growth stock can lose value due to short-term headwinds. It all depends on the valuation.
The 2022 tech meltdown came as tech stocks were trading at lofty valuations, and the news of a sharp interest rate hike created panic among investors. Shopify stock lost 80% in the first nine months of 2022.
What do interest rates have to do with tech stocks?
When interest rates are low, borrowing is cheap, and there is ample liquidity in the market. Investors and traders even buy stocks near their high and pump up the stock valuation for quick returns. However, when interest rates rise, the quick returns are no longer attractive as the cost of liquidity overtakes the lower returns that high-value stocks can give.
The 2021 tech bubble left all tech stocks overvalued as the interest rate was 0.25%. Hence, even a slight hunch of an accelerated interest rate hike made investors sell and book profits. It made sense as the interest rate jumped from 0.25% in March 2022 to 5% in July 2023.
Shopify’s stock began its recovery in 2023 after the company’s stock was oversold, with a Relative Strength Index (RSI) below 25. The RSI looks at the last 14 days’ stock price momentum to determine the buying strength. The stock is oversold if the RSI is low and overbought if it is high.
Shopify stock recovers to its 2021 peak
The recovery, which began in 2023, was backed by improving profit margins after Shopify sold its logistics business and returned to the asset-light model. Shopify has improved its merchant solutions revenue from 2.2% to 2.3% its Gross Merchandise Volume (GMV), with stringent cost-cutting, expansion in new markets, and an increase in merchant solutions.
Unlike the pandemic, where the growth was sudden, this time the growth is gradual and sustainable. Big brands are opting for the Shopify platform to enhance their digital presence. It has reported operating profit and free cash flow for nine consecutive quarters. The strong fundamentals helped the stock surpass its November 2021 peak of $215 (adjusted for stock split) and make a new high of $253 in October 2025.
Is it still a good investment?
Shopify stock saw a 20% correction after making a new high as the overall market turned bearish. The bearishness sparked from uncertainty around interest rate decisions as the US government came out of the shutdown with no macro data. Once the interest rate decisions are out, the market will revive as investors will get clarity on how to plan their next move.
Shopify stock is currently trading at 17.7 times sales per share and 80 times forward earnings per share. This valuation is closer to the December 2024 valuation. However, the company could see a higher growth rate this year as its artificial intelligence (AI) tools start contributing to sales.
With Black Friday and Cyber Monday coming this week, it is a good time to continue holding the stock to gain from the holiday season rally. You could consider adding more shares in March or April when the seasonal rally fades and the stock price dips to its 52-week low.
Other good investments
While Shopify is a good investment, you could get exposure to e-commerce momentum from other stocks in the supply chain. For instance, supply chain management service provider Descartes Systems is trading near its 52-week low as the tariff war has impacted trade volumes. However, its e-commerce solutions continue to drive sales, and they have not been priced in.
For dividend seekers, Granite REIT is a good option, as it earns rent from distribution and e-commerce properties, such as cold storage and multi-level fulfillment centres.
