Shopify (SHOP): This recession-proof stock looks unstoppable. Here’s why

The virus-related movement restrictions have had a complementary effect on the business of Shopify Inc. (NYSE: SHOP), which was already thriving on the widespread cloud adoption and digital shift. The company’s futuristic business model has helped it stay resilient to market uncertainties.  

Shopify has been taking advantage of people’s new shopping habits, especially after the mass shift to online platforms began during the shutdown. The Canada-based e-commerce service provider’s market value grew steadily since early last year as investors responded positively to its impressive performance. The stock peaked in mid-November, after staying on the growth path for a long time, but pared a part of the gains since then.

Investing in SHOP

Despite the recent pullback SHOP looks fully valued, but that shouldn’t discourage prospective investors from buying this high-growth stock, for the long term. It has room for further gains and is seen growing by about 10% through next year.

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Read management/analysts’ comments on Shopify’s Q3 2021 results

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Market watchers are quite bullish on the company’s future performance and see double-digit sales growth through 2026. The management expects the company’s partnership with social media platforms like Facebook Inc. (NASDAQ: FB) and newly-added TikTok would drive stable revenue growth.

One-stop Shop

The relevance of the company’s comprehensive offerings, ranging from e-commerce software to POS systems, is constantly increasing. The demand for cloud-supported e-commerce services is expected to grow at an accelerated pace in the coming years and Shopify is uniquely positioned to tap into those opportunities. The company recently launched Shopify Markets to enhance cross-border commerce and a money-management platform called Shopify Balance.

In the most recent quarter, for which results were published in late October, earnings missed analysts’ forecast by a wide margin, after beating in each of the trailing seven quarters. Adjusted earnings decreased sharply to $0.81 per share despite a 46% jump in revenues to $1.12 billion. The top-line growth reflects strong performance by both the business segments. However, revenues and gross merchandise volumes missed the Street view even as overall e-commerce growth decelerated.  

The slowdown is attributable to the tough comparison with last year’s third quarter when online activity surged to record highs triggering an e-commerce boom. It is worth noting that Shopify is not immune to the supply chain issues and logistics inflation that continue to affect both merchants and e-commerce companies.

From Shopify’s Q3 2021 earnings conference call:

“As a platform, Shopify enables merchants to connect with buyers through social and search in a number of different ways. While this most commonly happens via traditional ads placed, more merchants are finding value using a Shopify integrated marketing app or integration that takes buyers direct to checkout. In fact, GMV generated through these valuable integrations for social grew more than tenfold from the same quarter last year and double-digit sequentially.”

Stock Performance

Recovering from the recent dip, SHOP breached the $1,500-mark once again this week and stayed well above its long-term average. After gaining 27% since the beginning of the year, the stock traded sharply higher on Tuesday afternoon. It had closed the last trading session at $1,428.12.