1 Remarkable Growth Stock Down 80% to Buy Hand Fist in November


Retail sales soared last year, posting double-digit gains every month. Consumers were full of money from stimulus checks, so they went shopping. But the US economy is very different today. High inflation for decades has forced consumers to reduce discretionary purchases, leading to a dramatic deceleration in retail sales.

This economic downturn has hit Shopify (STORE -3.68%) hard. Many investors lost faith in the Canadian e-commerce company as revenue growth slowed and profits evaporated. In fact, Shopify saw its share price plunge 80% from its peak, marking its biggest loss in value in its history. This means that long-term investors now have a rare opportunity to buy this growth stock at a bargain price.

Shopify has a strong competitive position

Shopify has two sources of revenue: subscription solutions and merchant solutions. Subscription solutions revenue comes from premium point-of-sale (POS) software and platform fees. The Shopify platform helps retailers manage their business across physical and digital stores, including direct-to-consumer websites, online marketplaces like Amazonand social media like Alphabetis YouTube.

Merchant solutions revenue comes from fees charged for adjacent services, including payment processing, shipping, and financing, among others. Shopify also provides fulfillment services, and this part of its business is expected to grow as its national fulfillment network expands in the coming years.

Shopify’s broad portfolio has made it popular with small and medium-sized businesses, but the company is also stepping up with Shopify Plus, a commerce platform designed for larger businesses. According to G2 Grid, Shopify and Shopify Plus are the top two e-commerce platforms in terms of market presence. The company benefits from a particularly strong presence in North America. Shopify accounted for 10.3% of U.S. online retail sales last year, second only to Amazon.

Shopify sees short-term headwinds

This year, Shopify struggled with unfavorable exchange rates and high inflation, but management continued to invest in growing the business. As a result, sales slowed while operating expenses increased rapidly, leading to disappointing financial results. In the third quarter, revenue rose just 22% to $1.4 billion and Shopify posted a non-GAAP (adjusted) loss of $30 million, down from a non-compliant profit to GAAP of $103 million in the same quarter last year.

Investors should expect the same in the short term. Shopify will likely struggle as long as the economic downturn persists, and growth could slow further in the event of a recession. Meanwhile, rising operating costs and capital expenditures will put pressure on cash flow. In fact, management says it will spend around $1 billion on the Shopify Fulfillment network alone over the next two years.

These short-term headwinds will likely make the stock volatile, but patient investors have good reason to be bullish on Shopify over the long term.

The long term opportunity

According to eMarketer, global online retail sales are expected to grow 10% annually to reach $7.4 trillion by 2025, while U.S. online retail sales will grow 12% annually to reach $7.4 trillion by 2025. reach $1.5 trillion by 2025. Commerce software provider and the second-largest e-commerce company in the United States – is already well positioned to capitalize on this. But management has also defined an ambitious growth strategy.

First, the Shopify Fulfillment Network (SFN) will connect a system of warehouses, carrier partners, and last-mile delivery providers across the United States to make logistics easier and cheaper for merchants. Ultimately, DFS will allow merchants to guarantee two-day delivery, and management says this could increase conversion rates by more than 30% in many cases. The SFN will reach scale in late 2023.

Second, Shopify is gaining ground in brick-and-mortar retail. Its point-of-sale systems are now available in 14 countries, and offline gross merchandise volume (GMV) soared 35% in the last quarter. Meanwhile, the company is also expanding its geographic footprint at a rapid pace, as it recently launched payment processing in several European markets and launched its funding business in Australia. Shopify Payments is now available in 22 countries and Shopify Capital is now available in four countries.

Third, Shopify Plus GMV continued to outpace total GMV in Q3, driven in part by product innovation. Additionally, merchants now have access to sophisticated tools for marketing, cross-border trade, and business-to-business commerce. These tools not only make the platform more attractive, but they also expand Shopify’s addressable market. For example, B2B e-commerce sales in the United States will total $3 trillion in 2027, according to Forrester Research.

Currently, the shares are trading at 8.7 times sales — a bargain from the three-year average of 36.3 times sales — and a reasonable price to pay for potential Shopify deals. This is why this stock is a screaming buy in November.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Trevor Jennewin holds positions at Amazon and Shopify. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon and Shopify. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.


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