2 things that put Shopify ahead of its rivals, according to management. Is it time to buy the stock?

Concerns about the economy have caused many e-commerce stocks to struggle this year. Actions of Shopify (STORE -0.40%), Wayfairand Etsy they have fallen by more than 10% in the last six months alone. Even the powerful ones Amazon he barely managed to stay in the green during that stretch.

Investors fear the worst about a possible economic slowdown next year. But Shopify management believes the company is in a better position than many of its rivals.

Shopify has grown faster than its peers

On August 7, the company published its results for the second quarter, which ended on June 30. Revenue totaling $2 billion for the period was up 21% year-over-year. And excluding the effects of the sale of its logistics business, that growth rate was even higher at 25%. For the current quarter, revenue growth is still expected to be in the low to mid-20s.

Shopify has usually been one of the top e-commerce performers compared to its rivals.

Increase revenue for e-commerce stocks; data by YCharts. YoY = year over year.

What is Shopify’s secret?

On the recent earnings call, Shopify President Harley Finkelstein highlighted two key reasons for the company’s strong success. “I think a lot of the reason we don’t see the same thing that others might is because we just have merchants in a ton of verticals and a ton of (geographies),” Finkelstein said.

Ultimately, it comes down to versatility. Merchants can sell on Amazon, Etsy, and Wayfair, but they have much more control over that process with Shopify. It can help them launch a store quickly and easily and integrate it into their existing website. Or they may not have a website at all and just want to create an online store through Shopify.

As a result, the process is much more adaptable to different business models, with the flexibility to meet the needs of merchants regardless of the industry, product or service — or even the part of the world they’re in. Shopify can help anyone sell online.

As Finkelstein alluded to, it’s in over 175 countries. Amazon, by comparison, has a wide global reach and can deliver products to over 100 countries, but there are only 21 markets. By being able to reach a wider and more diverse set of merchants and customers, Shopify is less susceptible to specific market or industry conditions and can therefore generate better sales growth than its rivals.

Is Shopify Stock a Good Buy?

Despite the company’s encouraging numbers, the stock is down 12% year to date. The business is generating good growth, but profits are still pretty thin, so the stock trades at 70 times its trailing earnings. However, based on its price-to-earnings-growth ratio of 1.1, there could be good value for investors who are willing to buy and hold for the long term.

But in the short term, depending on how the economy plays out, it could be a bumpy ride for the stock. The company’s business isn’t entirely immune to the economy — Shopify’s growth weakened in 2022 as interest rates rose and consumers faced challenges from inflation.

It’s doing well now, but investors shouldn’t assume the stock is recession-proof. It can and likely will feel the effects of a downturn, but its diversification can help ensure that its growth doesn’t fall as hard as other e-commerce stocks.

Shopify may be a good long-term buy, but investors should temper their expectations; it may not be smooth if the economy worsens next year. And its high valuation could make it vulnerable to sales.