Shopify Stock: Why is SHOP stock crashing & where will it bottom?

$shop stock shop stock May 09, 2022

Shopify stock, or SHOP stock, has fallen nearly 75% in just the last 6 months! In just the last month it's down nearly 50%! What is going on with Shopify and when will the stock bottom? 

In this video, LINK, I discuss what is Shopify and why their stock has plummeted so dramatically in such a short period. 

The answer, like many crashing stocks, share a few common themes. These themes include:

  • Weaker than Expected Results,
  • Contracting Valuations, and
  • Unprofitable Operations!

Shopify, an ecommerce infrastructure platform for merchants of all size, saw their results accelerate dramatically during the COVID induced lock-downs.  But now, as the economy opens back up and ecommerce normalizes, so has Shopify's results. 

During the 1Q 2021, Shopify's revenue growth ACCELERATED to 110% however during the 1Q 2022 their revenue growth DECELERATED to only 22%. 

While many companies would love to post 22% growth, when you trade at top-tier valuation, you also need to deliver best in class growth. 22% growth simply isn't enough for a company like Shopify that at its peak was trading at 70x SALES!  

As Shopify adjusts to the new economic realities, the stock market is adjusting as well.

Slower revenue growth? Boo. 

Will 2021's unexpected profitability persist? Nope. 

Was Shopify overvalued at its peak? Absolutely! 

Is Shopify stock cheap now? That's a lot tougher to answer.

In order to have a strong opinion on Shopify stock, ask yourself the following: Will Shopify's growth rate rebound in the future? They're unprofitable now,  will they regain profitability in the near future?  Will competition erode their value proposition in the years ahead? 

I personally, own a teaser position in Shopify stock as I think over a multi-year period they have the potential to significantly outperform the major US indices.   That said, it's not going to be one of my top positions (for now) because I'd rather own companies with either more upside potential or the types of stocks that can CAPITALIZE on this market weakness. 

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