5 Reasons It's Not too Late to Buy Shopify Stock

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It may seem counterintuitive to invest in a company after its share price has grown multiple times in value. Psychologically, it feels much better to buy a beaten-down stock — but sometimes those stocks have been beaten down for a reason.

© Provided by The Motley Fool 5 Reasons It’s Not too Late to Buy Shopify Stock

Many of my most rewarding investments are stocks that I’ve bought repeatedly, even as the share prices skyrocketed. One great example is Shopify (NYSE: SHOP). Over the last 5 years, the share price has surged 2,930%, but I still think this stock is worth buying today.

Here are five reasons Shopify belongs in your portfolio.

© Getty Images Businesswoman preparing to ship item to a buyer.

1. Shopify offers an omnichannel commerce platform

Shopify makes commerce easier. Its software helps merchants manage their businesses across physical and digital storefronts, integrating transactions from brick-and-mortar locations, online marketplaces, social media shops, and custom websites into a single point-of-sale system. Shopify supplements its software with services like payment processing, discounted shipping, and financing. In short, its platform is an end-to-end solution for modern omnichannel commerce.

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That value proposition resonates with merchants, giving them the flexibility to support any customer experiences (e.g. buy online, curbside pickup, shop in-store) on any device or platform. As a result, Shopify has onboarded new clients at a rapid clip, and its platform now powers over 1.7 million businesses worldwide.

Moreover, while Shopify remains a good solution for small- and medium-size businesses, its platform is also gaining traction outside of this core demographic. Shopify Plus, a more flexible commerce solution designed for larger sellers, has seen adoption by over 10,000 enterprises, including Fortune 500 companies like Netflix, PepsiCo, and Unilever.

2. Shopify’s competitive edge is ironclad

Shopify is the most popular e-commerce platform in the U.S., holding a 29% market share. The breadth and scale of its ecosystem differentiates it from website builders like Wix, its ease of use sets it apart from WooCommerce, and its focus on helping businesses grow their own brand, which gives it an edge over marketplaces like Amazon.

To reinforce that advantage, the company is building the Shopify Fulfillment Network (SFN), a system of robot-powered warehouses that will span the United States. Once complete, this infrastructure will allow Shopify to pick, package, and ship products on behalf of its merchants while leveraging the data created across its platform to optimize supply chains and streamline logistics.

Specifically, the company will lean on artificial intelligence for demand forecasting, smart inventory allocation, and intelligent order routing, simplifying the fulfillment process for sellers and providing fast, reliable delivery for buyers.

© Getty Images Woman using a credit card to make a online purchase.

3. Shopify benefits from optionality in digital payments

Shopify benefits from optionality, meaning it has the flexibility to enter adjacent industries. However, many investors overlook this quality, focusing instead on its role in e-commerce.

However, Shopify recently announced that Shop Pay, its accelerated checkout solution, will be available on both Facebook and Alphabet‘s Google later in 2021. This means all sellers on those platforms, even those that don’t use Shopify, will be able to accept payments through Shop Pay — the highest-converting checkout solution on the internet, according to management.

This may not seem like a big deal, and it’s not — yet. But years ago, MercadoLibre made a similar move with its own fintech platform, Mercado Pago. And today, Mercado Pago actually handles more payments from third-party sellers than from the MercadoLibre marketplace, demonstrating its widespread adoption in Latin America.

If Shopify achieves similar success, Shop Pay could become a powerful growth engine, helping the company pivot more completely into the digital payments space.

4. Shopify has a solid balance sheet

Optionality isn’t Shopify’s only underrated asset. It also has $7.8 billion in cash and short-term securities on its balance sheet, compared with just $910 million in long-term debt. That pile of cash means Shopify can weather economic downturns without selling new shares or issuing debt, and it affords the company the flexibility to invest in growth opportunities as they arise.

For example, Shopify recently signed an exclusive partnership with Global-E Online, a company that simplifies cross-border e-commerce for merchants. As part of that deal, Shopify has purchased 9.7 million shares (6.7%) of Global-E common stock. But down the road, Shopify could acquire the company outright, a move that would allow it to monetize e-commerce beyond its own platform.

Of course, that’s pure speculation, but the point is this: Shopify’s solid financial position gives the company an edge.

5. Strong financial performance

No discussion about Shopify would be complete without mentioning its impressive financial performance. As online shopping has become more popular, merchants have flocked to Shopify’s platform, helping the company grow its top and bottom lines quickly.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$853.6 million

$3.9 billion

65%

Free cash flow

($31.5 million)

$507.0 million

N/A

Source: YCharts. TTM = trailing-12-months. CAGR = compound annual growth rate.

Looking ahead, I think Shopify should be able to maintain this momentum. Management currently puts its addressable market at $153 billion, but global e-commerce is still a relatively small portion of total retail spend, meaning that market opportunity will only get bigger. More importantly, Shopify has positioned itself as an industry leader, and it still has plenty of growth levers left to pull. In fact, I wouldn’t be surprised to see the company achieve a $1 trillion market cap a decade down the road.

That’s why it’s not too late to buy this stock.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine owns shares of Amazon, MercadoLibre, and Shopify. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, MercadoLibre, Netflix, Shopify, and Wix.com. The Motley Fool recommends Unilever and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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