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buy (NYSE: shop) has been a fabulous growth stock to own recently. Today, it is up a whopping 25% thanks to its third quarter earnings.
Is it too late to buy after this monumental gain? Let's discuss.
This stock is volatile.
I bought these stocks for my own portfolio at the beginning of 2021. And since then, it's been a wild ride.
By the end of 2021, it was up approximately 50%. However, the stock plummeted in 2022, leaving me with a loss of around 75%.
However, I was quite confident in the long-term story associated with the growth of the online shopping market. So I bought some more shares at lower prices.
Averaging like this has paid off. Today I have a profit of around 45%, which is not a bad return in less than four years.
I'm still optimistic
Looking ahead, I remain optimistic about the long-term situation.
The e-commerce industry continues to grow at a rapid pace, and Shopify, which offers a comprehensive platform for brands, is attracting new customers all the time.
Companies using the platform today include companies such as teslaRed Bull and Heinz. The fact that these types of businesses use Shopify suggests that it has a great platform.
As for finances, they are excellent. For the third quarter of 2024, revenue increased 26% year-over-year to $2.2 billion, while operating income increased 132% to $283 million.
Thanks to this performance, the company raised its full-year revenue guidance to “mid to late twenties“Percentage growth. Analysts were expecting 22.7% growth, which is why the share price has risen today.
The third quarter was outstanding, further establishing Shopify as a leader in powering commerce anywhere, anytime. Our unified commerce platform is becoming the preferred choice for merchants of all sizes..
Shopify President Harley Finkelstein
Something that is helping the company today is artificial intelligence (ai). Earlier this year, the company launched its ai assistant, Sidekick, which provides sellers with sales reports and customer data and can help with tasks like setting up discount codes.
High rating
Valuation-wise, the stock is expensive today.
Analysts currently expect Shopify to generate earnings per share of $1.37 by 2025. So, we're looking at a forward-looking price-to-earnings (P/E) ratio of around 80.
That leaves no room for error. If we saw a slowdown in consumption, or competitors like amazon stealing market share, the stock could fall.
But I wouldn't necessarily discount the stock because of this valuation. This is a stock that has always been expensive. And the high valuation hasn't stopped it from generating strong long-term returns. In the last five years, it has increased about 260%.
How Shopify would play
What you would probably do if you didn't own the stock but were interested in buying it is start a small position from time to time and then try to increase it over time. This is what I usually do with these types of expensive growth stocks.
With a small position, I can profit if the stock continues to rise. However, if the stock pulls back, I'm not affected much (and I can buy more to lower my average purchase price).
