In 3 sentences:
- Shopify is a leading provider of e-commerce solutions to many retailers who sell online.
- Profits have exploded over the past year as online sellers have expanded their use of Shopify services.
- Shopify’s valuation has fallen to tempting levels following the stock’s recent decline.
Shopify (NASDAQ: GOTTEN) recently announced a 10-to-1 share split that takes effect on June 28 for record-breaking shareholders on June 22. At least if the shareholders agree. This means that Shopify’s current stock price of $ 439.50 would be $ 43.50 after the split.
While the lower stock price could spur demand for the stock, it would likely be temporary. In the longer term, the share price is only supported by business development. Because of this, the recent drop in Shopify’s stock price seems like a good buying opportunity. Nearly 600 million customers made purchases from Shopify resellers in 2021, an increase of 31% from 2020.
It seems like almost every online store I come across uses Shopify for the buying process. It makes me consider buying stocks for at least three reasons.
1 Continued growth in revenue
Shopify’s business is easy to understand. The company makes its money by selling subscriptions to tools that help companies open and manage online stores. Shopify offers additional services – which the company calls merchant solutions – for payment processing (Shopify Payments), shipping and fulfillment, credit (Shopify Capital) and even apps through the Shopify App Store.
E-commerce competition is on the rise, and this is one of the reasons why salespeople are turning to Shopify. In 2021, revenue grew 57% year-over-year to $ 4.6 billion, with most of the growth coming from grocery solutions. This means that companies continue to use additional services after registration, which says a lot about Shopify’s value proposition.
2 Growing free cash flows
One criticism of Shopify was that the company did not report profits. However, the company’s situation has been reversed by the growth of its reseller solutions with higher margins. For 2021, Shopify reported an adjusted net income of $ 814 million, or $ 6.41 per share.
Based on free cash flow, which reflects the actual amount of cash generated by the company, Shopify has also improved, going from negative to positive cash flow over the last many years.
3 The stock provides better value
Shopify’s business continues to grow and free cash flow begins to grow, which is very encouraging. The improved fundamentals make the stock’s lower price-to-sale (P / S) ratio very enticing, which is currently just over 12 times sales. It is much more attractive than 60 times the sale the stock traded a year ago.
What do you dislike about it? Revenue growth is expected to slow in 2022 as the pandemic-driven e-commerce growth gradually subsides. In addition, competition is intensifying. Amazon just announced the Buy with Prime program, which offers fast delivery and free shipping to retailers selling through Amazon, which could bring Shopify even more attention from Amazon.
But it’s also one of the reasons why investors can buy Shopify at the lowest value in three years. The stock is still quite expensive, but with declining valuation I might get hot about buying it.
The article 3 Reasons Why I Might Buy Shopify Stock Before the Stock Split first appeared on The Motley Fool Germany.
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John Ballard owns shares in Amazon. The Motley Fool owns shares in and recommends Amazon and Shopify. This article was published on April 26, 2022 at Fool.com and has been translated for our German readers.
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