Is Shopify (TSX:SHOP) Still Undervalued Enough to Be Attractive?
Written by Adam Othman at The Motley Fool Canada
The Canadian tech sector has fallen over 25% since its September 2021 peak, and Shopify (TSX:SHOP)(NYSE:SHOP) is leading the downward charge. The e-commerce giant has seen its market value slashed almost by half (47% drop) and has only recently started to stabilize.
It’s also more attractively valued than it has been in years.
Shopify valuation
Even though the price-to-book ratio is still 9.9 and EV-to-sales ratio is about 25.1, the valuation is astonishingly low compared to its former numbers, as evident by the price-to-earnings ratio of about 33.1 times. This valuation and a massive 47% discount almost make Shopify a must-buy right now.
However, such a drop in a company that has proven its mettle as one of the best growth stocks of the last decade can be quite alarming for potential investors. Even though it’s not fundamentally undervalued, the term can be applied if we compare it against the company’s past valuations.
The future
The overall tech selloff that has caused the NASDAQ to drop by 10% didn’t start till December, so it can’t be considered a specific trigger, but it certainly didn’t help. And while Lightspeed‘s massive fall may have contributed to the investor fear of e-commerce stocks, it started two months earlier.
There were other factors as well, like relatively paced revenue growth projections. But these trends and patterns point towards saturation and more realistic growth, unlike the exponential one the platform has enjoyed so far — not a long-term decline.
And now that the investors have seen how far Shopify can go, the stock has a very realistic chance of reaching or even beating that growth peak. The company’s recent partnership with China’s JD.com is a step in the right direction as far as organic growth is concerned. The deal is beneficial for both companies, as Shopify gains access to a massive new market and JD.com becomes more “international.”
Q4 2021 earnings
The company just recently announced its earnings, and even though they’re not as strong compared to the company’s previous year’s earnings, it’s better than the investors’ estimate. It grew its revenue by 41% compared to Q4 2020, and even though the merchant recurring revenue hasn’t grown as rapidly as before, it’s still up, which is a positive sign in a post-pandemic market.
The gross merchant value also grew by a decent margin (31%). Overall, the growth looks healthy. The numbers are in the company’s favour, and though they might not have smashed speculations and expectations, they are decent enough to start a bull run.
The investors may not come flocking in, as they did during earlier growth phases, and the growth might be slower compared to its former pace, but buying now or waiting for another dip is significantly better than disregarding this opportunity altogether.
Foolish takeaway
Shopify is still undervalued enough to be attractive and might become even more so if it dips further, despite the strong earnings. But if it’s the signal to a recovery-fueled growth run, you may consider buying now before the discount tag starts getting lighter.
The post Is Shopify (TSX:SHOP) Still Undervalued Enough to Be Attractive? appeared first on The Motley Fool Canada.
Should You Invest $1,000 In Shopify?
Before you consider Shopify, we think you’ll want to hear this.
Our S&P/TSX market doubling Stock Advisor Canada team just released their top 10 starter stocks for 2022 that we believe could be a springboard for any portfolio.
Want to see if Shopify made our list? Get started with Stock Advisor Canada today to receive all 10 of our starter stocks, a fully stocked treasure trove of industry reports, two brand-new stock recommendations every month, and much more.
See the 10 Stocks * Returns as of 1/18/22
More reading
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Shopify. The Motley Fool recommends JD.com and Lightspeed Commerce.
2022
