Thursday, December 1 2022

Stocs rallied after the initial COVID-19 sell-off in March 2020 as government stimulus measures fueled consumer spending and spurred robust economic growth around the world. But since the start of 2022, the Stock Exchange has turned into a circus show. Between 40-year high inflation, the Federal Reserve’s decision to raise interest rates in return, and the negative effects of Russia’s invasion of Ukraine, investor sentiment is shaken in multiple directions. .

Since the beginning of the year, the S&P500 and Nasdaq Compound contracted by 22% and 33%, respectively, and now there are legitimate fears that a recession is on the horizon. Tech stocks have been particularly fragile, and that includes e-commerce companies, which continue to struggle with unfavorable macroeconomic conditions combined with a reopening economy.

However, as long-term investors, it is essential that we do not lose sight of the end game. Global digital trade is expected to grow at a compound annual growth rate (CAGR) of 15.1% to reach $17.5 trillion by 2030, from $4.2 trillion today. While investors must distinguish between age-old winners and losers, it’s never been clearer than e-commerce is the future.

This e-commerce top dog has crashed 78% since the start of the year, offering savvy investors a golden buying opportunity today.

Image source: Getty Images.

Adapt to the new landscape

Shopify (NYSE: SHOP) released a junk report in the first quarter to kick off 2022. Total sales ended largely in line with Wall Street expectations, rising 21.7% year-over-year to $1.2 billion, but adjusted earnings per share significantly missed estimates, falling 90% year-over-year to $0.20.

During the earnings call, management continually stressed that massive changes in the macroeconomic landscape – such as high inflation and the reopening of the global economy – negatively impacted the company’s business in the first quarter. . This should not shock investors, however. COVID has accelerated the shift to e-commerce, and government stimulus measures have made it more accessible to pay for Shopify services.

Despite this, gross merchandise volume (GMV) increased 15.8% year-over-year to $43.2 billion, and monthly recurring revenue (MRR) increased 17% to $105.2 million. Surely it wasn’t an ideal quarter for the e-commerce leader, but those aren’t bad year-over-year growth rates considering the first quarter of 2021, which marked the strongest quarterly revenue growth in company history.

Outraged Amazon, Shopify reigns over the largest share of retail sales in the United States, accounting for 10.3% of the overall market. In terms of e-commerce software, the company takes the cake for the biggest market share, controlling almost a third of the industry. With over a million merchants in its network worldwide and an estimated addressable market of $160 billion, Shopify is in good hands moving forward.

For the company’s 2022 fiscal year, Wall Street analysts expect total sales to rise 28.9% year-over-year to $7.5 billion, and adjusted profit per share is expected to fall 84% to $1.30. Next year, when unfavorable comparable metrics normalize, analysts estimate revenue will climb 29.6% to $9.7 billion and earnings per share will rebound 98% to $2.57.

While you should take these predictions with a grain of salt, for now the fact is that a good recovery is likely in Shopify’s future. Today, the stock is trading at eight times the sales, and while that may seem expensive, this is Shopify’s lowest price-to-sales multiple in five years. In my opinion, with its strong market positioning and declining valuation, now is the perfect time to rack up some share of the e-commerce stock.

It’s time to go against the tide

Taking the road less traveled often results in incredible long-term investments. Today, many investors are no longer in love with Shopify, which leads me to believe that now is an optimal time to buy. Once the short-term headwinds normalize, all signs point to continued success for the e-commerce business going forward.

It’s the #1 platform merchants visit to build online businesses, an age-old trend that’s only going to get bigger in the years to come – not to mention the stock is trading at its lowest valuation ever. in five years, adding yet another layer of security for investors.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Luke Meindl has no position in the stocks mentioned. The Motley Fool holds positions and recommends 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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