Is Shopify Stock a Smart Buy Under $100? Here’s What You Need to Know
Shopify stock has been on a rollercoaster over recent years. Shopify shares saw a massive 400% increase during the pandemic as demand for e-commerce software and payment tools surged. But when the e-commerce boom faded, Shopify’s stock dropped nearly 90% from its peak. Over the past 12 months, however, Shopify’s stock has rebounded by 55%, though it still remains below the highs seen in 2021.
Investing in high-growth stocks like Shopify means dealing with volatility. Yet, Shopify’s core financials reveal steady improvements in growth and profitability. So, is Shopify stock a good buy at under $100?
Refocusing on Core Services
During the pandemic, Shopify had ambitious plans, such as competing with Amazon in logistics, experimenting with cryptocurrency, and acquiring a robotics company. However, Shopify later scaled back, selling its logistics division and reducing its workforce by 20%. By going back to its core products—e-commerce software and payment tools—Shopify is now strengthening its foundation. Today, its software helps businesses create and manage online stores, while its payment tools handle transactions both online and in stores. These two services have helped Shopify generate $7.7 billion in annual revenue.
Shopify’s Revenue and Profit Growth
After selling its logistics business, Shopify’s revenue grew by 25% last quarter, hitting $2 billion. This is impressive considering it grew 31% in the same quarter the previous year, suggesting that Shopify is capturing market share from competitors. By increasing prices on subscription services with minimal customer turnover, Shopify demonstrates strong customer loyalty and potential for future growth.
Efficiency has also improved. Last quarter, Shopify’s free cash flow margin rose to 16%, up from 6% a year prior. Operating margin also reached 11.8%, including stock-based compensation. For the remainder of 2024, Shopify expects revenue to grow in the mid-20% range with continued high free-cash-flow margins.
Is Shopify Stock a Good Buy Below $100?
The real question is Shopify’s valuation. While the stock has dropped 50% from its high, it still has a market cap of $100 billion, or more than 10 times its sales over the past 12 months. Estimating a 20% annual revenue growth over the next five years, Shopify’s revenue could reach around $19 billion. If its operating margin also improves to 20%, Shopify could see $3.8 billion in earnings.
In five years, this projects a price-to-earnings ratio similar to the S&P 500 today. This suggests Shopify stock may already be priced for future growth, making it less appealing below $100 for some investors.
For those looking to invest in Shopify stock, it’s essential to consider whether its current price aligns with its long-term growth potential.