Shopify Stock: Buy, Hold, or Sell?

The last 12 months have been unstable for us Internet shop‘S (STORE 1.09%) investors. At one point, the stock was trading at $45.50, but over the next few months, its price doubled to $91.57. The stock is now down to about $63.

The stock’s recent moves suggest that bulls and bears are still undecided about Shopify’s long-term prospects, with the former liking the company’s huge e-commerce opportunity while the latter is wary of Shopify’s high valuation.

So what should current and prospective investors do with Shopify stock? This article aims to shed some light on that.

Alternative partner for traders

One of the biggest trends of the last two decades is the development of e-commerce, which has become the driving force behind the greatest successes of our generation. Amazon and Shopify are just some examples of the huge beneficiaries of this favorable situation.

While both companies may seem similar to the average consumer, they are very different companies with very different business models. Amazon operates an e-commerce marketplace, selling products directly and indirectly (through third-party sellers) to consumers. This combination of first- and third-party selling models helps Amazon get the best of both worlds by serving its customers and receiving commissions from sellers in exchange for selling on its platform.

Amazon has a love-hate relationship with its sellers. On one hand, sellers are dependent on Amazon’s massive user base and other services, such as fulfillment and logistics, to drive sales. But they’re also at the mercy of the tech giant, as Amazon sets the rules of the game, which can be counterproductive to its sellers’ interests. Worse still, Amazon is a direct competitor to these sellers, offering similar products at lower prices — something it can do because of its immense purchasing power and access to historical sales data.

Shopify, on the other hand, is a software-as-a-service (SaaS) company that focuses primarily on providing tools that help merchants succeed in the digital world. This means that unlike Amazon, Shopify allows merchants to have full ownership of customer data, brands, websites, and more, giving them control over their business.

In addition, sellers can customize their online stores, websites, and services to suit their business needs, which helps them serve their customers better. This again contrasts greatly with Amazon, as sellers have no choice but to accept Amazon’s decision on store design and other services.

Another important aspect that Shopify offers is helping merchants go omnichannel by providing all the tools to sell online, offline, and everywhere else. For example, a merchant can start selling online using the Shopify software platform, but later expand to the brick-and-mortar world with Shopify POS, which comes with both hardware and software tools.

In short, Shopify has become indispensable by aligning its interests with the interests of its merchants.

Globalization and everywhere else

Shopify is a remarkable growth stock. From 2015 to 2023, revenue grew from $205 million to $7.1 billion. Given its size, some investors have concerns about the tech company’s ability to continue to grow.

I think these concerns, while valid, may have missed the bigger picture. For starters, Shopify has enabled $236 billion in gross merchandise value (GMV) in 2023, which is just 3% of the total US retail spend of $7.3 trillion. It could grow exponentially and still not exhaust that opportunity.

To that end, the company is investing heavily in growing its offline business through its POS hardware and software, with promising early results. For example, offline revenues hit $411 million in 2023, five times more than in 2019. As long as it can continue to innovate and add tools that help customers succeed in offline sales, it will have ample opportunity to grow with existing merchants (those expanding from online to omnichannel) and attract new merchants from the traditional offline world.

But that’s not all. Shopify aims to become a global e-commerce player by further expanding its target market. This includes bringing best-in-class tools offered to merchants in existing markets, such as payments, POS, and financing, to new markets to help international merchants succeed. It also enables existing customers to go global through Shopify Marketplaces, a suite of tools that help merchants sell internationally. To put that in perspective, global e-commerce sales are expected to reach $5.8 trillion in 2023, excluding offline retail.

In short, Shopify has enough potential to keep itself busy for the next decade.

Solid business, but with a high price

Identifying a solid company with good prospects is only half the equation for a good investment. Investors should also consider the price they’re paying for the stock. In this regard, Shopify is trading at a price-to-sales (PS) ratio of 11.2, a significant premium to Amazon’s P/S ratio of 3.

While it is not unreasonable for investors to pay a higher price for Shopify, paying such a high price does not seem safe given the stock’s huge prospects.

What does this all mean for investors?

Shopify has achieved an extraordinary growth record since going public. What’s more, the company is well-positioned to continue to grow in the coming years, taking advantage of opportunities in local and international markets.

However, the positive factors have reflected in its premium valuation, so investors are not getting any bargains by buying the stock today. Overall, while the stock is probably not a good buy today given the upcoming bargains, it is not a sell for those who already own it. For now, it is a hold.