A stock with falling share prices makes most people feel nervous about investing in it. However, Foolish investors with a long-term investment horizon know that a downturn on the stock market might mean it’s the perfect buying opportunity.
It’s important to remember that not every stock with falling share prices is a good investment to consider. You have to check whether it is a fundamentally solid stock that is becoming cheaper. Even then, you should consider whether the underlying business has seen any changes that justify a lower valuation, or if it might be a temporary setback.
There’s no guaranteed way to accurately predict when the share prices will go up or down. However, the stock market often reacts to short-term fears and sells off shares despite the underlying business quietly continuing to bolster itself behind the scenes.
When there is a sell-off despite the underlying business doing well, the disconnect becomes an excellent opportunity to invest in potentially undervalued stocks. Today, I will discuss a Canadian tech stock that might not traditionally qualify as undervalued, but it is a beaten-down growth stock worth a closer look.
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Shopify
Shopify Inc. (TSX:SHOP) is a Canadian growth stock that I find very attractive as an investment despite the current pullback. Shopify has become one of the most well-known names in the e-commerce industry, thanks to its role as an important e-commerce enabling platform. For those unaware, Shopify offers merchants of all sizes everything they need to start, run, market, and scale e-commerce operations worldwide.
Growing in popularity during the pandemic, Shopify has become one of the biggest names in this space. Its ecosystem lets merchants build around Shopify and then use the growing suite of tools to expand opportunities. In turn, Shopify keeps getting more business, creating a cycle of continued success for the merchants that use its platform and for its investors.
As of this writing, Shopify stock trades for $168.69 per share, down by 33% from its 52-week high. Despite trading at a significant discount from its 52-week high, Shopify stock has recovered by around 30% from its 52-week low valuation.
The business itself is running well
The discounted share prices might not mean anything if the business itself isn’t doing well. A quick look at its financials indicates that it is a fundamentally solid business that continues performing at a high level.
The first quarter of fiscal 2026 saw Shopify report a 34% year-over-year uptick in its revenue. Its gross merchandise value and gross profit reached US$100.7 billion and US$1.6 billion, respectively. The company’s monthly recurring revenue also increased to US$212 million, painting a clear picture of how healthy the company is. Shopify continues to find more ways to grow and expand, despite the harsh economic environment.
Foolish takeaway
Shopify’s business is doing well, and it seems that the current share price means it might be a solid bargain to buy and hold in your self-directed investment portfolio. The fact that it also ended the quarter with almost US$1.9 billion in cash or cash equivalents proves it has significant financial flexibility. With its management expecting more growth in the second quarter, it might be the right time to invest in its shares.
