Is it too late to buy Shopify stocks?

Shopify (NYSE: SHOP) has generated massive returns since its public debut in May 2015. A $ 10,000 investment in the IPO of the Canadian e-commerce services company would be worth more than $ 820,000 today.

Shopify was also a great stock to keep during the pandemic. It increased by 185% in 2020 as more merchants set up online stores throughout the crisis. The share price rose another 29% in 2021, even as skeptics worried about its post-pandemic slowdown and sparkling valuations.

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Investors who don’t already own Shopify might blame themselves for missing out on these gains. They are also probably wondering if it is not too late to invest in this disruptive darling of e-commerce. Let’s take a look at Shopify’s growth rates, future plans, and ratings to decide.

Why has Shopify grown like a weed?

Shopify’s self-service e-commerce services allow small businesses to quickly set up online stores, process payments, fulfill orders, and manage their online marketing campaigns. These tools make it a “one-stop-shop” for starting an independent online business without joining a crowded third-party market like Amazon (NASDAQ: AMZN).

Many merchants who didn’t want to follow Amazon’s rules, pay its fees, or compete with other third-party sellers turned to Shopify to establish an online presence. At the time of its IPO, Shopify only served 162,261 businesses worldwide. Today, it serves over 1.7 million businesses.

This is why Shopify’s revenue grew at a compound annual growth rate (CAGR) of 70.2% between 2015 and 2020. During those five years, Amazon’s revenue grew at a CAGR of 29, 3%.

But can Shopify keep that momentum going?

Shopify’s revenue grew 86% in 2020 and 66% year-over-year in the first nine months of 2021. Analysts expect its revenue to grow 56% overall of the year and potentially 33% in 2022.

Shopify divides its business into two main segments: subscriptions (30% of its revenue in the last quarter), which includes its point-of-sale services and Shopify Plus plans for large businesses; and merchant solutions (70% of its revenue), which includes its payment processing, execution and financing services.

Shopify’s growth is slowing, but the expansion of its stickier subscription business is expected to offset difficult year-over-year comparisons for its merchant solutions business, which has seen unusually strong gross merchandise volume growth. (GMV) during the pandemic.

In the last quarter, Shopify President Harley Finkelstein said it took 15 years for merchants using Shopify to generate $ 200 billion in annual cumulative GMV, but that figure had doubled to $ 400 billion per year. in the past 16 months. Shopify does not expect this pandemic-induced acceleration to continue into 2022.

Shopify’s adjusted gross margin contracted in 2020 as it generated a greater share of its revenue from its low-margin merchant solutions business during the pandemic. But in the first nine months of 2021, its adjusted gross margin rose again as its higher margin subscription business grew and attracted more merchants.

Meanwhile, Shopify’s robust revenue growth easily offset temporary swings in its gross margins. Its adjusted net income soared more than 14 times in 2020 and more than doubled year-over-year in the first nine months of 2021. Analysts expect its adjusted earnings per share ( EPS) increases by around 90% for the whole year, but drops 4% the next time around. year as it once again accelerates its investments.

What about Shopify reviews?

Shopify’s business model is disruptive and its growth rates are exceptional. However, its shares are also trading at nearly 280 times futures earnings and 28 times next year’s sales. These high valuations could limit its growth potential in the short to medium term, while exposing it to massive inflation-induced sell-offs.

Having said that, I’ve repeatedly let my worries about Shopify ratings deter me from buying the stock, and I’ve missed out on some massive payouts. Therefore, I think it’s time to change my perception of Shopify.

If Shopify grows revenue at a 30% CAGR for the remainder of the decade, its annual revenue would still grow from $ 2.9 billion in 2020 to over $ 40 billion in 2030. Even as its valuations cool in the process. down the road, Shopify could still easily generate more multibagger earnings – so it’s certainly not too late for long-term investors to rack up more shares of this hot ecommerce stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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