Shopify Stock: Is the Decline an Investment Opportunity?

Shopify (NYSE: SHOP) stock reversed pandemic-led gains and is trading about 79% lower from the 52-week high. The reopening of physical retail, tough year-over-year comparisons, and pressure on margins from its aggressive investments led investors to turn their back on Shopify stock. 

Besides a slowdown in growth, factors impacting consumer spending like record-high inflation and rising interest rates weighed on the shares of this cloud-based e-commerce platform provider. 

However, as Shopify stock has declined quite a lot, it looks attractive at current price levels. But before jumping to any conclusion, let’s dig deeper to ascertain what the future holds for Shopify. 

Could Growth Return? 

The factors mentioned above could curb Shopify’s short-term growth. However, its growth could reaccelerate in the second half of the year as comparisons ease. William Blair analyst Matthew Pfau sees tough year-over-year comparisons to impact its Q2 performance. However, the analyst believes that the setup for the second half of the year “is promising with easing compares and a benefit from increased sales and marketing investment.”  

Pfau is bullish about Shopify’s prospects. He added, “In our view, multiple expansion combined with 20%-plus revenue growth over the next three years could drive shares to more than double over a three-year period. Thus, we maintain our Outperform rating.”

While Pfau is bullish about SHOP stock, Deutsche Bank analyst Bhavin Shah listed competitive headwinds, fading sector tailwinds, and uncertainty regarding the company’s investment cycle as reasons for his Hold recommendation. 

Notably, the near-term headwinds keep Wall Street analysts cautiously optimistic about Shopify stock. Its Moderate Buy consensus rating is based on 15 Buy, 11 Hold, and two Sell recommendations. Further, due to the substantial decline in SHOP stock, the average Shopify price target of $646.71 implies 73.6% upside potential to current levels.

Bottom Line

The slowdown in Shopify’s growth shouldn’t surprise much. The company warned earlier that it is up against tough comparisons in the first half of the year (the prior-year period benefitted from COVID-led acceleration and government stimulus). Moreover, it cautioned about inflation and consumer spending in the short term. 

While short-term headwinds could continue to stall Shopify’s growth, its new commercial initiatives and investments in sales and marketing will likely drive its addressable market. Moreover, the continued addition of merchants to its platform, increased penetration of payment solutions, strengthening of its fulfillment network, and growing share of e-commerce in the overall retail sales bode well for long-term growth. 

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