Will Shares of Shopify Follow in Amazon’s Footsteps?

Will Shares of Shopify Follow in Amazon’s Footsteps?

Posted On September 28, 2020 11:07 pm

As Canada’s most valuable company, Shopify Inc. (SHOP) provides an intuitive e-commerce platform, facilitating merchants of varying types and sizes to offer their products and services. The company powers over one million businesses in more than 175 countries. Like Amazon.com (AMZN), SHOP helps merchants set up digital stores and then provides services to help those businesses grow. Thanks to the pandemic, this year has been outstanding for the e-commerce platform due to the accelerated pace of adoption of online shopping by consumers.

SHOP is one of the best-performing stocks in 2020, with record revenue and income growth. Total revenue in the second quarter was $714.3 million, a 97% increase from the comparable quarter in 2019. Monthly recurring revenue stood $57 million, growing 21% compared to the year-ago quarter. Moreover, Gross Merchandise Volume (GMV) for the quarter increased 119% year-over-year. EPS for the quarter came in at $0.29, significantly improving from the year-ago loss of $0.26 per share.

With the robust growth in the e-commerce platform amid the pandemic, the stock gained 141.7% year-to-date compared to the AMZN’s 67.5% return in the same period. Given SHOP’s huge success in the e-commerce space, this is perhaps the right time for the company to venture into the other areas that Amazon is currently dominating.

However, based on several factors, SHOP has a “Neutral” rating in our proprietary rating system. Here is how our proprietary POWR Ratings system evaluates SHOP:

Trade Grade: C

SHOP is currently trading below its 50-day moving average of $992.93 but higher than its 200-day moving average of $688.90, indicating that the stock is neither in an uptrend nor in a downtrend. However, the stock’s 149.8% return over the past six months reflects a solid short-term bullishness.

New stores created on the Shopify platform grew 71% in the second quarter compared to the preceding quarter. This was primarily driven by the rapid shift to e-commerce as well as by the extension of the free trial period offered by SHOP on standard plans from 14 days to 90 days. However, GMV through the point-of-sale (POS) channel declined by 29% quarter-over-quarter, as many retail merchants suspended their in-store operations during the first half of the quarter.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, SHOP is fairly positioned. The stock is currently trading 16% below its 52-week high of $1146.91.

Looking at the past three years, the stock gained more than 725% due to the steady growth in user base consisting of small businesses and rapid supply-chain expansion. The company’s revenue grew at…

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