Shopify (TSX: SHOP) has been a key player in the e-commerce sector, known for providing a robust platform for businesses worldwide. However, recent financial results and market performance raise several red flags for potential investors.
Today, let’s look at what’s been going on with Shopify stock, and why, until things are better, there’s likely another tech stock that’s strong enough to buy right now.
Performance
In the first quarter of 2024, Shopify reported mixed financial results. While revenues exceeded analyst expectations, the earnings per share (EPS) missed projections. Shopify’s revenue for the first quarter (Q1) of 2024 was US$1.86 billion, slightly above the anticipated us$1.84 billion. However, this was overshadowed by an EPS that fell short, indicating profitability issues.
There have been notable instances of insider trading that might unsettle investors. Recent reports indicate that senior officers at Shopify have been selling shares, which can sometimes signal a lack of confidence in the company’s short-term performance. For example, a senior officer sold 425 shares of stock recently, contributing to a 15.4% decline in share price since then
Another significant concern is Shopify’s valuation metrics. The company’s trailing price-to-earnings (P/E) ratio stands at 784, reflecting a far overvalued stock. This stark figure makes it challenging to compare Shopify to other profitable companies within its sector. Additionally, Shopify’s price-to-book (P/B) ratio is 9.3, considerably higher than the industry average, suggesting the stock might be overvalued relative to its assets.
Now, it’s not all over for Shopify. Shopify’s strategic decisions, such as selling a majority stake in its fulfillment network to Flexport Inc. for approximately $110 million, might provide liquidity but also reflect a shift in focus that could affect future growth prospects. While Shopify continues to innovate and expand its services, these changes introduce uncertainties about its long-term strategy and market positioning
CGI stock
As investors navigate the volatile tech market, CGI (TSX:GIB.A) presents a compelling case for investment compared to Shopify. CGI reported impressive financial results for the first quarter of Fiscal 2024. The company achieved a revenue of $3.60 billion, marking a 4.4% year-over-year increase.
This growth was accompanied by solid earnings before income taxes of $527.1 million, up 2.0% from the previous year. Additionally, CGI’s adjusted earnings before interest and taxes (EBIT) rose by 5.4%, demonstrating a resilient profit margin
A contributor to this is that CGI has a diversified business model that spans IT consulting, systems integration, and outsourcing services across various sectors. This includes government, healthcare, and financial services. This diversification helps mitigate risks associated with market fluctuations and economic downturns. Recent strategic acquisitions, such as the majority stake in Celero’s business, have further strengthened CGI’s market position and service offerings
So, given CGI’s robust financial performance, diversified business model, and strong cash flow, it presents a more stable and promising investment opportunity compared to Shopify. Investors seeking reliable growth and lower risk should consider CGI stock as a strong alternative to Shopify stock — at least for now.
