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Shopify (SHOP) stock got caught up in the collapse of e-commerce stocks.
Markets conveniently forgot the immense value in Shopify’s platform.
Investors do not appreciate the value of the Deliverr acquisition.
Source: Jirapong Manustrong / Shutterstock.com
Despite the yearlong slump in Shopify (NYSE:SHOP), skeptical investors are not willing to bet against the software e-commerce firm. Short sellers know that SHOP stock could stage a considerable rally at any time. Under current bear market conditions, fearful investors based their valuation concerns to justify avoiding Shopify shares.
The lower prices get, the more investors might miss a potential opportunity. Markets are fickle. Its bearish sentiment is leading to the stock’s decline. Long-term investors may patiently wait for valuations to fall far enough. Eventually, Shopify is the first e-commerce stock to rise from the rubble.
Markets Dump E-commerce Stocks
In the weeks following its quarterly earnings report, Amazon (NASDAQ:AMZN) failed to catch buyers on the dip. Singapore-based Sea Limited (NYSE:SE) also traded at yearly lows. South Korean internet retailer giant Coupang (NYSE:CPNG) is also in a downtrend, despite posting reasonably good quarterly results.
Markets are incorrectly classifying Shopify among e-commerce firms. The aforementioned companies face increasingly weak demand as disposable income falls. Inflation rates risk rising to the double-digit percentage in the months ahead.
Shopify is not afraid to invest in growth. It recently announced an e-commerce fulfillment technology acquisition.
In the first-quarter financial report, Shopify announced plans to buy Deliverr, a fulfillment technology provider. It needs to fortify its fulfillment and delivery operations now. Its clients need a back-end solution that competes with Amazon’s one-day delivery offering.
Shopify reported a point of sales growing by around 80% year-over-year (YoY). To support its insatiable growth rates, Deliverr will accelerate its shipping capabilities. For years, Shopify needed to strengthen its end-to-end logistics network. The acquisition will get it there faster.
The company increases its appeal to merchants with Deliverr. They will have a better experience through superior software. Shopify will scale the solution, giving merchants more control of its logistics network.
SHOP Stock Has Manageable Risks
Technology investors worry about the operational risks related to big acquisitions. Shopify has a mission in helping local businesses thrive. To retain its local merchant base, it needs a strong back-end network.
Shopify spent heavily to acquire talented engineers. Its development team will ensure that it scales its operations to meet the unlimited demand for e-commerce solutions ahead.
Shopify’s stock performance in 2021 will pale in comparison to this year and beyond. Last year, it is among many technology firms that benefited from frothy markets. The Federal Reserve fueled the technology bubble. The government overheated the economy by issuing stimulus checks.
The high-interest rate will continue to undermine Shopify’s premium valuation. The upcoming recession may weaken transaction volumes within a year. This is a necessary headwind to slow the economy and weaken inflation.
Is SHOP Stock a Buy or Sell?
Shopify is a speculative buy. The price-to-earnings is still very high. If the stock drops more, investors will still pay a premium. Fortunately, no other competitor may offer as good an online merchant platform compared to that of Shopify.
Analysts are not giving up on Shopify’s prospects either. The average price target is around $612, according to Tipranks.
According to Stock Rover’s quantitative research report, Shopify’s stock offers investors good quality and a discount.
Shopify has varying scores depending on quality, value, and growth. It scores highest on quality.
SHOP stock has rarely offered investors an entry price at this level of value.
Growth investors should consider starting a small position on Shopify. Increase the position over the next several months. Avoid panic selling when shares drop. Instead, set a regular schedule for building a core position.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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