Down 74%, Should Smart Investors Buy Shopify Stocks During a Bear Market?

The e-commerce industry has been in the worst chaos in recent memory. On the one hand, it makes a lot of sense. The pandemic has involuntarily pushed many people to shop online, accelerating the secular trend and masking the overall growth picture.

But now that the global economy has largely reopened, the tables have turned a bit. According to US Census data, e-commerce sales accounted for 14.3% of total retail sales in the first quarter of 2022, down 14.9% from a year ago, marking the second consecutive quarterly decline.

Of course, these recent trends have negatively affected businesses that focus on online shopping like Shopify (a store 11.10%), which has seen its share price drop 74% since the beginning of the year. The company, which allows entrepreneurs and businesses to easily build and customize online stores, released its latest earnings report on July 27, providing investors with another peek into the dynamics of the current e-commerce arena.

In light of the overall unfavorable conditions, is it time for savvy investors to package up and buy stocks of leading e-commerce software?

Image source: Getty Images.

Shopify continues to struggle

In the second quarter of the year, the leading e-commerce software company grew total revenue by 15.7% and reported a net loss of $0.95 per share, creating a significant gap from its positive earnings of $0.69 per share in the same quarter last year. The bleak results from above and below, which did not fail Wall Street expectations, came shortly after the company announced it would cut its workforce by 10%.

Unsurprisingly, management noted in the earnings statement that high inflation and an ever-increasing interest rate environment will be difficult for its business for the remainder of the year. The company referred to 2022 as a “transition year,” as the e-commerce industry resets its pre-COVID trendline.

On a more positive note, Shopify’s monthly recurring revenue (MRR) increased 12.7% year-over-year to $107.2 million, indicating that more merchants were still joining the platform, and total merchandise volume (GMV) expanded 11.1% to close at $46.9 billion. . GMV represents the total dollar value of orders facilitated via the Shopify platform.

For fiscal year 2022, Wall Street analysts estimate that the company’s total revenue will rise 19.9%, to $ 7.1 billion, and that earnings will return to the red, at $ 0.07 per share, compared to $ 0.82 a year ago. Next year, analysts expect its top streak to grow another 21.9% and the company to report positive net earnings of $0.06 per share.

However, the pandemic has already roiled Shopify’s growth story, and it will likely take a few years for the situation to fully settle. But given its strong market position and upward trajectory of the e-commerce market, I believe we will see a day when the company will be consistently profitable.

Now that it’s trading at 9.2 times sales, which is easily below the five-year average compounded sales price of 32.7, it might be a good idea for investors to check out the stock.

What should investors do now?

Although it’s not out now, Shopify is still in a beneficial position for solid growth in the coming years. The company is responsible for 31% of US websites that use e-commerce technologies, making it the largest e-commerce software platform nationwide, and its global market share is 21%, second only to competition WooCommerce.

Knowing this, and also realizing that the global digital commerce market is expected to grow at a compound annual growth rate (CAGR) of 15.1% through 2030, investors should be impressed with the company’s new sale. In my view, Shopify remains a great long-term game for those who are willing to put up with some growing pain in the short term.

Luke Meindl has no position in any of the stocks mentioned. Motley Fool has positions at Shopify and recommends. Motley Fool recommends the following options: long January 2023 calls at $1,140 on Shopify and short January 2023 calls at $1,160 on Shopify. Motley Fool has a disclosure policy.

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