Is it too late to buy Shopify stock?

Congratulations to anyone who had a stake Shopify (STORE 1.09%) before August 7th. Shares rose after Wednesday morning’s release of second-quarter results, ending the day up 18%.

The big move raises an equally big question: Is it too late to buy Shopify stock?

In a word, no.

Shopify shines again

Shopify helps businesses of all sizes build and manage an e-commerce presence with services like web-based shopping carts, payment processing, and more. Estimates put the number of online stores powered by Shopify between 2 and 4 million, collectively serving millions of shoppers every day.

And I still shop in droves. Last quarter, the company facilitated the sale of $67.2 billion worth of goods and services, collecting $2.0 billion in revenue in the process. Those are 22% and 21% year-over-year improvements, respectively, and better than analysts expected.

Better yet, Shopify returned to a profit of $171 million after posting an accounting-driven loss in Q1, and management expects to continue growing both its top and bottom lines for the rest of the year . Analysts agree, modeling a 22% increase in sales this year, along with a 32% increase in earnings. Next year (and beyond) is expected to be just as impressive.

Data source: StockAnalysis.com. Chart by author.

And that’s the curious part of Shopify’s story lately; despite healthy Q2 results and strong earnings this week, Shopify shares are still down about 25% from their February peak and more than 60% from their all-time high. What gives?

The latest leg of this weakness is the result of a weak T1, or more precisely, the T2 outlook shared in that report. The company said in May that it was only looking for second-quarter sales growth in the teens, down from its historical growth rate. CFO Jeff Hoffmeister’s talk of “currency-related headwinds from the strong US dollar and some weakness in European consumer spending” further deflated investors, extending weakness that first occurred a few weeks earlier.

Now the market is realizing that it may have made a mistake by giving up on Shopify so easily.

Catching a loop and secular tail wind

The core argument for owning a stock in this e-commerce technology company remains one based on the numbers. It has shown strong historical growth and is expected to continue to grow in the foreseeable future. It also returned to profitability following the increase in earnings during the COVID-19 pandemic. Only this time, it’s built to stay in the black.

The other argument for owning a Shopify piece, however, is a more philosophical one. That is, Shopify is already operating where e-commerce is going.

In the early days of the internet, consumers and businesses alike relied on platforms like eBay and Amazon to serve as a shopping intermediary. But time and technology are negating at least some of this reliance on such intermediaries. Consumers are now finding products offered directly by the brands themselves. Indeed, it’s arguable that Amazon and eBay have grown too big for the good of many of their merchants, pitting them against each other (and, in Amazon’s case, against the tech giant itself). Shopify offers the obvious alternative.

However, he only scratched the surface of his opportunity. Shopify merchant stores account for only about one-tenth of annual e-commerce sales in the United States, and only about 6% of the online shopping industry in Western Europe (where it’s still relatively new). The rest are businesses to win.

Meanwhile, the e-commerce market itself continues to grow, with plenty of room to continue to do so. The US Census Bureau says less than 16 percent of the nation’s retail spending is currently done online. While some of it will always be done in-store, much of the remaining 84% is still up for grabs. Market research team Oberlo expects US e-commerce industry revenue to grow at a 10.5% pace this year and then accelerate slightly each year through 2027.

Connect the dots and you’ll see that there’s still plenty of growth potential for Shopify to tap into here.

A lot of advantages

As promising as its business may be, owning Shopify stock is not for the faint of heart. The stock has experienced extreme volatility over the past few years.

For those willing to take the plunge, the key is to remain patient enough to allow the stock to reflect how well this company is seizing its opportunity.

If you’re still unsure, this might help. Of the 51 analysts covering Shopify stock, 30 recommend the stock a buy, and the rest rate it at least a hold. No one suggests selling. Consider making a move before stocks have another bullish week.