Shopify (TSX:SHOP) stock has faded in a big way in 2022. The sell-off was brutal and unprecedented. For new Canadian investors who punched their ticket at or around the peak, the losses came quickly and suddenly.
Before Shopify stock split its shares, I warned investors that the valuation had gotten a tad out of hand. And though I respected management (CEO Tobias Lütke is a genius), I was not at all comfortable getting behind any company, even the growthiest one out there, when it was going for more than 30 times price-to-sales (P/S). There’s expensive, and there’s absurdly expensive. Shopify stock spent a big chunk of 2021 in the latter camp.
Shopify stock: From painfully expensive to dirt cheap
After a more than 80% crash from peak to trough, Shopify stock eventually became cheap. For those who waited it out, the opportunity to pounce arrived. And though Shopify stock still isn’t a “deep value” gem while it remains off considerably from all-time highs, I still believe it’s a pretty good deal for the money for long-term investors seeking next-level growth.
Undoubtedly, interest rates are high, and they could continue to keep tech names in check. That said, the most innovative of emerging technologies always find a way to plow through even tough conditions. The rise of AI with OpenAI and ChatGPT is just one example of a profound technology that could have the potential to change everything.
Now that AI is here, don’t count on any sort of moratorium to derail its progress. I think it’s here to stay. Firms like Shopify, I believe, are primed to get in on the AI action as e-commerce and other industries looks to evolve for the new age.
Shopify’s still a top Canadian innovator
The next stage for e-commerce could incorporate incredible AI technologies. Shopify has a small, AI-powered description tool, which I praised in prior pieces. I believe more such tools could be in the cards as Shopify embraces tech to help make the lives of its merchants easier.
With such a powerful network of merchants, I’d argue there are profound upselling opportunities as Shopify looks to help merchants save money and remove friction from the payment process.
Though it’s tough to tell what could come next out of Shopify’s innovative pipeline, I’d not discount the company just because shares have crashed. Management put its foot on the gas a tad too hard back in 2020 and 2021. Now, it’s in the right spot. And I think it’s just a matter of time before Shopify finds its way back into the portfolios of long-term thinkers as it continues to do its best to make its mark on e-commerce in the AI age.
The new valuation seems too depressed
Shopify will need to grapple with a handful of headwinds. Ultimately, I believe Shopify will rise to the challenge and come out on the other side stronger, with new capabilities and technologies. For such a capable firm, I’d argue 10.1 times price-to-sales (P/S) is a tad too modest.
