1 Growth Stock Down 53% to Buy Right Now


Shopify was once one of the market’s favorite growth stocks. Shares are a buy after a big correction.

Shopify (SHOP -0.09%) stock rarely goes on sale. Since the company went public in 2015, shares have nearly always traded above 15 times sales. At their peak, Shopify shares were priced at an astounding 60 times sales.

After a sharp correction, however, Shopify stock now trades at its cheapest valuation in years. Shares are already on the rebound but remain 53% below their previous highs.

If you want to buy a terrific growth stock at a sizable discount, keep reading.

Buy these businesses and never sell

It’s not actually possible to buy and hold a stock forever, but it’s a good framework to have in mind when making an investment. As legendary investor Warren Buffett proved, buying businesses that can grow for decades is a great way to achieve both financial and emotional security.

If you’re looking for stocks you can feel comfortable owning for a lifetime, look no further. It’s not hard to imagine Shopify becoming a $1 trillion business someday — 10 times its current market cap. That’s because the company benefits from network effects, a rare but highly valuable characteristic.

In a nutshell, network effects describe how the value of a product or service rises as more people use it. When done right, this creates a positive feedback loop that can last generations. Shopify is harnessing this advantage right now.

At its core, Shopify operates an e-commerce platform that allows anyone to start selling online easily within minutes. You no longer need to be a computer expert to set up an online shop, track inventory, accept digital payments, ship worldwide, and market to millions of potential customers across dozens of channels. All you need is Shopify.

Today, Shopify has more than 1 million storefronts and, by some estimates, controls nearly 30% of the U.S. e-commerce platform market. How did it achieve such large growth? By harnessing network effects through its developer marketplace. Right now, anyone can join Shopify’s developer program and start building new features and functionality into the company’s platform. When users use those features or functions, the developer gets paid. Meanwhile, Shopify sees its platform grow in power.

Developers want to contribute to platforms that can earn them the most money. That usually means going with the platform that has the most users and, thus, the most potential demand. In this regard, Shopify has a heavy lead in the U.S., making it the most attractive option for developers.

Users, meanwhile, want to use the platform with the most features and functionality. With the most developers, Shopify is arguably the most attractive platform for new users. These new users, in turn, attract yet more developers, which attracts yet more users — network effects in action.

When companies get network effects right, they can grow for far longer than most anticipate. Right now, Shopify is at the start of a long runway of growth, one that won’t slow anytime soon. In fact, there’s reason to believe that growth will beget more growth, a wonderful side effect of a business built on network effects.

SHOP Revenue (Quarterly) Chart

SHOP Revenue (Quarterly) data by YCharts

Don’t expect the discount to last for long

Great growth stocks don’t go on sale often. When they do, be prepared to strike. This looks like such a moment for Shopify stock.

A few years ago, growth stocks across the board, especially technology stocks, saw their valuations skyrocket. A surge in demand during the pandemic saw many of these companies post their highest growth rates in years. The market quickly bid up these stocks to astronomical levels. When growth rates normalized, sentiment swung heavily in the other direction. Market darlings like Shopify saw their stock prices crater.

While Shopify shares have rebounded from their recent lows, make no mistake — paying the current valuation of 14 times sales is still a bargain for a $100 billion business that could foreseeably become a $1 trillion business a decade or two down the road. With strong network effects powering a long-term growth engine, this is your chance to buy a high-quality growth stock on the cheap.



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