E-commerce giant Shopify (TSX:SHOP) has been on an absolute tear this past year. After plummeting in 2022, shares of SHOP stock have rebounded off their lows, and have now more than doubled on a year to date. Recently breaching the $100 per share level, the question many investors have is: can this run continue into 2024? After all, some consolidation can be expected at some point, given how aggressive this rally has been of late.
Let’s dive into a few reasons why this rally can continue.
What does Shopify do?
Shopify is a cloud-based multichannel platform headquartered in Canada. The company allows merchants across the country to design, market, manage, and sell their products through multiple channels, including its portal, social media platforms, mobile storefronts, pop-up shops, physical retail outlets, and online marketplaces.
Shopify recently divested its logistics arm to Flexport but has retained an ownership percentage in the company. Thus, Shopify has become more of a pure-play on its core platform and has been focused on streamlining its operations to improve its cost efficiency.
The company’s e-commerce platform empowers merchants to efficiently manage their products and inventories, establish a strong relationship with their customers, process payment efficiently, fulfill shipments, and other back office functionality. So long as businesses continue to set up online shops, Shopify’s growth rate should remain relatively strong over the long term.
Strong performance driven by fundamentals
In 2023, Shopify’s stock price surged above the $100 level for a variety of reasons. Of course, market-related macro forces contributed to this rise. Investors looking to add risk have moved up the risk spectrum, and Shopify finds itself as a company, which is a very long-duration asset.
Additionally, it’s clear that Shopify’s fundamentals have also driven this move. Black Friday sales growth was impressive, signalling strength ahead for this holiday shopping season. In fact, Shopify’s platform witnessed record-breaking traffic on the day of Black Friday, and the stock price rallied up to 112% compared to the previous year. With Christmas and New Year’s approaching, Shopify is expecting a high revenue growth in the fourth quarter.
I think that this trend won’t turn out to be temporary. Rather, online merchants who are able to sustain their sales growth through this holiday season are likely to retain their Shopify memberships over the long term. Thus, Shopify’s stickiness comes into play for those investors thinking long term about these recent results.
Bottom line
Shopify’s monster run has been impressive to watch. And no one (certainly not I) can predict what 2024 will bring.
That said, the catalysts that drove this year’s rally show no signs of abating in the new year. Interest rates are likely to come down, and it’s now increasingly possible that a soft landing could take place. If that’s the case, Shopify is poised to continue ripping higher.
Of course, risks remain prevalent with Shopify, and investors should always focus on diversifying their portfolios. But for those with some growth component to their overall portfolio, this is a stock I think is worth owning right now.
