Shopify (SHOP), the upstart challenging eBay (EBAY) and Amazon.com (AMZN), is now generating more than $1 billion in quarterly sales. But is Shopify stock a buy right now?
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On Oct. 28, Shopify earnings missed third-quarter estimates, but shares reversed sharply higher in heavy volume.
What Is Shopify And How Does It Work?
Shopify was started by snowboarding enthusiasts more than a decade ago. In fact, it started as an online snowboard shop, moving into e-commerce software when the founders couldn’t find what they were looking for — a platform to both sell goods and grow their brand.
Across 175 countries, 1.75 million merchants use the SHOP platform to sell and market their products. In return, the software company earns subscription fees. Subscriptions range from $29 per month for entrepreneurs to $2,000 and up for large companies. It also offers shipping, digital payments and fulfillment, under the umbrella terms of merchant solutions.
SHOP Earnings And Fundamentals
For the third quarter of 2021, Shopify earnings came in at 81 cents per share on an adjusted basis, down 28% vs. a year earlier and well below views. Revenue rose 46% to $1.12 billion, slightly missing forecasts.
Wall Street expects Shopify earnings to climb 61% in all of 2021. SHOP earnings are seen falling 4% in 2022.
Both merchants and consumers pivoted online during the pandemic, benefiting Shopify. But on July 28, SHOP continued to warn of slower revenue growth after a blowout 2020. It also withheld specific 2021 financial guidance. Shopify still expects rotation in consumer spending back to services and offline retail, with „a more normalized“ pace of e-commerce growth.
On key earnings and sales metrics, Shopify stock earns an EPS Rating of 82, and an SMR Rating of B, on a scale of A-E, with A the best. The EPS rating compares a company’s earnings growth to other companies, and its SMR Rating measures sales growth, profit margins and return on equity.
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Shopify Stock Technical Analysis
Shares of SHOP have an official 1650.10 buy point from a consolidation going back to late July, according to MarketSmith chart analysis. But Shopify stock cleared an aggressive trend line break in late October following Q3 earnings. On Nov. 12, SHOP stock shot up again in heavy volume after a brief pause, blasting above another trend line entry and ultimately clearing the official 1,650.10 buy point.
The relative strength line for SHOP stock is below the consolidation peak, but catching up. It rallied sharply for much of 2019 and 2020, then went sideways. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
Shopify stock earns a Composite Rating of 93 out of 99. The rating combines key fundamental and technical metrics in a single score.
Its 79 RS Rating means that its performance is in the top 79% of all stocks over the past year.
As of September, 2,079 funds owned Shopify stock. And SHOP shows nine quarters of rising fund ownership, according to the IBD Stock Checkup tool.
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Coronavirus Impact On Shopify Stock
In 2020, Shopify emerged as a clear coronavirus stock winner. The pandemic drove up online buying and selling, with more consumers and merchants turning to the Shopify platform.
Shopify is investing heavily to grow. In 2021, key areas of investment include the Shopify Fulfillment Network, the Shopify app and international expansion. It’s also integrating 6 River Systems, a 2019 acquisition that makes warehouse software and robots, into its distribution network.
Analysts call the company a structural winner from the pandemic boost to e-commerce. Goldman Sachs forecasts that global e-commerce will grow 19% annually over the next three years, up from a prior view of 16%.
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Google, Facebook Partnerships
Shopify’s leveraging partnerships to grow, including one with viral video-sharing app TikTok. On Aug. 25, Shopify and TikTok said they were teaming up to allow shoppers to shop directly in the TikTok app for the first time. Other partners include Alibaba (BABA), Walmart (WMT), Facebook (FB), Pinterest (PINS) and Google, a unit of Alphabet (GOOGL).
Analysts at KeyBanc Capital Markets believe that Shopify could eventually levy an e-commerce fee from merchants, similar to Amazon.
However, more and more companies seek to provide e-commerce software services. Adobe acquired e-commerce technology firm Magento in 2018. Microsoft launched Dynamics 365 in 2019. Partners Facebook and Google introduced shopping tools in 2020.
In February, Amazon acquired Selz, a Shopify rival that helps small businesses to build online stores.
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SHOP Stock Group
Shopify belongs to IBD’s Computer Software-Enterprise group, which ranks a strong No. 16 out of 197 industry groups. SHOP stock is a leading stock in its group. During the coronavirus pandemic, enterprise software stocks emerged as winners because of remote working and learning.
Stocks to watch in this group include Salesforce (CRM), Twilio (TWLO) and Paycom Software (PAYC). Other members include ServiceNow (NOW), DocuSign (DOCU), Workday (WDAY) and Zoom Video (ZM).
Digital Turbine (APPS) and Dynatrace (DT) are also stocks to watch in this group. Many of these software companies, including SHOP, are current or former IBD 50 stocks.
ServiceNow belongs in IBD Leaderboard, a curated list of stocks with the most potential for big gains.
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Is Shopify Stock A Buy Right Now?
Shopify ticks off many of the boxes that investors should be looking for. It was a big winner in 2019 and 2020, solidifying its threat to eBay and Amazon. Key acquisitions and expansions promise more runway for growth. New and expanded partnerships with TikTok, Google, Facebook and Alibaba could move the needle.
The software company has a history of huge earnings and sales growth, but profits declined in Q3 and could remain weak over the next few quarters.
From a technical perspective, SHOP stock has boomed above a 1,650.10 buy point.
Bottom line: Shopify stock is a buy right now.
For ideas about large-cap stocks to buy right now, check out the link.
To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD research.
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