Shopify (NYSE: SHOP) stock has experienced a major decline over the last 12 months. This time last year, the e-commerce stock was trading near $140 ($1,400 before the recent stock split). Today, however, it can be picked up for just over $40 – roughly the same level it was at just before the pandemic.
I already have a small holding in Shopify (it’s extra small after the recent share price fall). So is now the time to buy more stock for my portfolio? Let’s take a look.
Three reasons to buy the stock
There are plenty of reasons to still be bullish on Shopify stock, in my view. For starters, the long-term growth story associated with online shopping is still intact.
According to Statista, global retail e-commerce sales are set to grow from $5.7trn this year to $8.1trn by 2026. Growth drivers will include increased internet and smartphone penetration, advances in mobile payments technology, and an increasing influence of social media on shopping behaviours.
This industry growth should provide strong tailwinds for Shopify, which operates one of the largest e-commerce platforms globally.
Secondly, Shopify continues to grow at a healthy rate (although not at the same rate as during the pandemic). For the third quarter of 2022, revenue came in at $1.4bn, up 22% year on year. This was ahead of analysts’ forecast of $1.34bn. Meanwhile, for the recent Black Friday/Cyber Monday period, Shopify merchants generated sales of a record $7.5bn, up 19% year on year.
Looking ahead, analysts forecast revenue of $5.5bn and $6.7bn for 2022 and 2023 respectively. These equate to top-line growth of 20% and 21%.
A third reason to be optimistic here is that CEO Tobias Lütke recently spent $10m of his own money on Shopify stock (near the $35 mark). This suggests he’s confident about the future and that he expects the share price to rise.
A risky investment
Having said all that, Shopify is a higher-risk stock. One reason is that the company is not making any money right now. The group did generate a profit in 2020 and 2021, however, this year, it expects to make a loss. Currently, analysts have a net loss of $79m pencilled in for 2022.
Another reason is that the valuation is still quite high. If we take next year’s projected earnings figure of $0.04, the forward-looking price-to-earnings (P/E) ratio here is over 1,000! Meanwhile, the price-to-sales ratio using this year’s sales forecast is about 10.
Additionally, Shopify faces plenty of competition from the likes of Amazon, eBay, Etsy, and GoDaddy. So there’s no guarantee the stock will do well from here.
My move now
So what’s my verdict on the e-commerce stock? Well, weighing everything up, I’ve decided I am going to buy some more Shopify stock in the near future.
Although it’s higher risk, with the share price back at early 2020 levels, I think the long-term risk/reward skew here is relatively attractive.
