Shopify (shop -2.39%) Stock prices have been unusually strong, more than doubling since the beginning of 2023. This gain outpaced the 55% jump in tech stocks. Nasdaq Composite You can index and beat even the e-commerce giants Amazon and eBay .
There's a good reason why Shopify is outperforming, despite having smaller revenue volumes than many of its peers. For example, the digital sales infrastructure specialist has room to increase its market share over the next decade. At the same time, you can easily increase your earning power. Let's take a look at why Shopify is one of the best e-commerce stocks investors can buy right now.
great growth
Shopify allows merchants to run their business primarily using a comprehensive e-commerce platform, but also a POS system. This approach differs from less comprehensive platforms that leave much of the sales process to the seller.
Shopify's approach provides a ton of value to these sellers, whether they're small or large enterprises. Evidence of its value can also be seen in the fact that its 2023 sales increased by 26%, easily surpassing last year's results according to market experts. Etsy And eBay.
Even Amazon lagged behind Shopify's surge in transaction volumes during the holiday season, while revenue from the latter's high-margin subscription solution rose 23% over the year. When it comes to e-commerce growth, Shopify certainly belongs near the top of the list.
the missing part
However, the platform's revenue hasn't been that great, with Shopify posting an operating loss of $1.4 billion in 2023. However, the adjusted operating margin of 11% shows promise after excluding one-time costs associated with exiting the logistics business. Among its peers, which could be considered one of e-commerce's “Magnificent Seven,” Shopify trails eBay (27%) and PDD Holdings (23%). mercadolibre (15%), Etsy (10%), Amazon (6%), and walmart (Four%).
As such, Shopify's profitability is improving and may not be an issue by this time next year. Free cash flow has returned to positive territory over the past five quarters, likely keeping his double-digit margins for much of 2024.
And don't forget that logistics-related impairments will not be repeated this year. This helps explain why most Wall Street analysts expect Shopify to steadily grow non-GAAP profits in 2024.
price you pay
As you can imagine, investors are being asked to pay a hefty premium for a piece of this high-growth business. The stock trades at 14 times sales, a much higher multiple than most other large e-commerce companies.
Shopify can also achieve “great” stock status by maintaining its growth momentum, which seems likely in 2024. Management expects sales to increase by nearly 30% this year, taking into account the sale of the logistics division.
A rise in the stock price will require a major move toward higher profitability than some of its established rivals routinely produce. Let's hope the company takes a step in that direction this year and reaffirms its position as a top e-commerce platform by then.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Demitri Kalogeropoulos has positions at Amazon and Shopify. The Motley Fool has positions in and recommends Amazon, Etsy, MercadoLibre, Shopify, and Walmart. The Motley Fool recommends his eBay and recommends the following options: His April 2024 $45 short call on eBay. The Motley Fool has a disclosure policy.
