Should Investors Consider Buying Shopify Stock?

Shopify (NYSE:SHOP) stock has been rising for five consecutive days. On March 26, Shopify stock increased 0.18%, while it has risen around 34.5% since March 19. At Thursday’s closing price of $447.41, the stock’s market cap was $51.2 billion. Currently, Shopify stock is trading 24.7% below its 52-week high of $593.89 and more than 135% above its 52-week low of $190.38. On a YTD (year-to-date) basis, the stock has grown by 12.5% as of Thursday. In comparison, the S&P 500 has declined around 18.6% YTD.

So, what are the current trends signaling? Should investors go long on Shopify stock amid the stock market crash?

Among the 31 analysts covering Shopify stock, 15 recommend a “buy,” 14 recommend a “hold,” and two recommend a “sell.” Analysts have an average target price of $543.6 on Shopify. The target price implies a return of 21.5% based on Thursday’s closing price.

On Monday, KeyBanc slashed its target price to $500 from $575 on Shopify stock. On March 19, PI Financial cut its target price to $500 amid the coronavirus fear. Jefferies raised its target price to $400 from $300 on March 11. On March 16, CNBC’s Mad Money host Jim Cramer expressed his optimism about Shopify shares during the “Lightning Round” segment.

Shopify stock’s 14-day RSI (relative strength index) score of 53.95 shows that it isn’t oversold or overbought. The stock closed around its middle Bollinger Band level of $418.15 on Thursday, which also suggests that the stock is neutral. The company’s upper Bollinger Band level is $534.74, while its lower Bollinger Band level is $301.55.

Shopify stock beat the earnings and revenue expectations in the fourth quarter of 2019. The company released the results last month. Shopify reported an adjusted EPS of $0.43 in the fourth quarter, which beat Wall Street’s numbers of $0.24 per share. The earnings also increased by 59.3% YoY (year-over-year) from $0.27 in the fourth quarter of 2018. Shopify’s revenue of $505.2 million rose 47% YoY and beat analysts’ estimates of $482.1 million. The fourth-quarter revenues also beat the company’s guided range of $472 billion–$482 billion released during the third quarter.

Shopify’s upbeat performance followed its strong holiday sales. The company witnessed worldwide sales of over $2.9 billion from Black Friday to Cyber Monday in 2019, which was around 61% higher compared to the same period in 2018.

The company continued to spend on its fulfillment networks to attract more merchants. Now, Shopify has over 1 million merchants globally on its platform. Last year in June, the company decided to invest around $1 billion in building fulfillment centers in the US. I think that Shopify’s fulfillment investments should help it compete better with Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and Walmart. According to some analysts, citing in a CNBC report, Shopify’s expansion in fulfillment centers should help it make deliveries across the US in two days or less. Shopify is the second-largest e-commerce retailer in the US after Amazon.

The e-commerce company also gave upbeat revenue guidance for 2020. For 2020, Shopify expects its revenue to grow from $2.13 billion–$2.16 billion. Analysts expect revenue growth of 36.2% YoY to $2.2 billion in 2020. However, analysts expect the 2020 EPS to decline by 29.9% YoY.

Since many businesses will slow down due to the spread of the deadly coronavirus across the globe, Shopify will also take a hit. The company generates revenue from its delivery services and from its online payment services. Many small and medium-sized businesses use Shopify’s e-commerce platform to connect with customers. Now, these businesses might suffer due to social distancing amid the coronavirus outbreak.

Meanwhile, the company might gain from Congress approving a massive stimulus package of $2 trillion on March 25 in the wake of the coronavirus pandemic. The stimulus package will provide cash assistance to many Americans to buy essential items. Online orders on e-commerce websites, which are powered by Shopify’s platform, would benefit the company. As more people are forced to stay at home, I think that online payments and online shopping should keep increasing and benefit Shopify.