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Bear of the Day: Shopify, Inc. (SHOP)

Once an investor favorite during the pandemic, the tide has shifted significantly for Shopify SHOP in 2022 amid facing one of the most challenging macroeconomic backdrops in history.

Shopify has an incredible story, providing a multi-tenant, cloud-based, multi-channel e-commerce platform for small and medium-sized businesses. It’s easy to see why it was such a loved stock during the pandemic.

However, the Fed has become hawkish in 2022, creating an unfavorable environment for growth stocks that borrow capital at a higher rate.

Analysts have undoubtedly taken note of the challenging business environment, pulling back their earnings estimates over the last several months, pushing the stock into an unfavorable Zacks Rank #5 (Strong Sell).

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s take a deeper dive into Shopify’s current state.

Share Performance & Valuation

It’s been a fall from glory for Shopify shares in 2022, down nearly 80% and vastly underperforming the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Over the last month, Shopify shares have continued to see adverse price action, down close to 20% and underperforming the S&P 500 in this timeframe also.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Shares can’t catch a break, with sellers winning the battle all year.

In addition, SHOP’s valuation multiples appear a bit stretched, with the company carrying a Style Score of an F for Value. Its 8.1X forward price-to-sales ratio represents a 115% premium relative to its Zacks Sector.

However, the value is a fraction of its five-year median of 22.7X.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Performance

The company’s earnings performance has left some to be desired as of late, with SHOP missing revenue and earnings estimates in three of its previous four quarters.

Just in its latest print, Shopify recorded a wide 200% bottom line miss and a 3% revenue miss.

Bottom Line

Steep valuation levels and worse-than-expected quarterly reports paint a grim picture for the company in the short term.

Shopify SHOP is a Zacks Rank #5 (Strong Sell), telling us it has a weak near-term earnings outlook.

Instead, investors should pivot to stocks that either carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) – these stocks have a much stronger earnings outlook.


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Zacks Investment Research

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