SHOP Stock: Buy, Sell, or Hold?

Shopping and e-commerce

We’re now past the halfway mark of 2023, and most investors have an idea as to which sectors may be worth sticking with through the remainder of the year. However, one sector that continues to garner interest from growth investors remains e-commerce stocks. Companies like Shopify (TSX:SHOP) have performed very well on a year-to-date basis, blowing away many investors’ expectations, given how rough 2022 was.

Let’s dive into whether Shopify represents a buy, sell or hold at this point in the cycle. Indeed, it’s difficult to discern whether SHOP stock is on the uptrend amid a fresh bull market rally or if this is just a pop before another leg lower ahead of a potential recession.

What do Shopify’s Q2 results suggest? 

In order to look forward to what the future has in store for SHOP stock, sometimes it’s best to look at how the company has performed in the past. Shopify recently declared its second-quarter (Q2) results, and analysts are not cheery about the company following its earnings, given the fact that Shopify missed on the bottom line, reporting a loss per share of roughly -$0.14, compared to expected earnings per share of $0.06.

These results were doubly disappointing, considering Shopify has been focused on cutting costs over the past two quarters. These efforts have borne fruit. However, it’s clear that Shopify has more work to do to bring costs in line with the market’s expectations. The fact that Shopify lost US$1.3 billion while cutting 20% of its workforce doesn’t signal that its cost control efforts are effective, at least not yet.

That said, with revenue still trending higher, and the company continuing to prove it can grow through periods of uncertainty, there is plenty to like about Shopify’s prospects moving forward. Right now, the outlook for this company is about as murky as it gets. But for those who have followed Shopify for any period of time, it’s these periods of uncertainty that have proven to be the best buying opportunities for this long-term growth gem.

Bottom line

Shopify has always been focused on integrating advancements in technology into their business. As their latest upgrade, they have now implemented Google Cloud AI (artificial intelligence). Merchants can now advance search and browse experiences utilizing Google Cloud’s Discovery AI solution. Some of the unique features include AI-powered browsing, AI-driven personalization capability, AI recommendations, advanced privacy and security, and Google Cloud Retail Search. 

Should these growth initiatives translate into both revenue and earnings-per-share growth, there’s plenty of upside potential on the horizon for SHOP stock. Investors want to see profitable growth, and that remains the key question for the company right now. In my view, I think SHOP stock remains a hold for now but a long-term buy, and I’d be interested in this stock on any major dips moving forward.

The post SHOP Stock: Buy, Sell, or Hold? appeared first on The Motley Fool Canada.

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Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.