Shopify has a great business model. Small companies looking to set up e-commerce sites have long turned to Shopify. The ease of setting up a site, the low cost, and its customer service helped to set it apart. But many different e-commerce platforms, such as WooCommerce, Wix, Squarespace, and others, are determined to capture significant market share in this industry.
However, it has transcended this struggle by moving outside of the software space and launching the Shopify Fulfillment Network (SFN). With SFN, Shopify can process, package, and ship a company’s orders. Hence, any e-commerce business likely to need this help will probably choose Shopify over its peers.
Shopify’s valuation has gotten a lot more reasonable over the past few months. Shopify’s P/S ratio fell to just under 15. Although it is significantly more expensive than Wix or Squarespace at that sales valuation, its P/S ratio is still near a three-year low. Shopify is still less expensive (from a P/S standpoint, not the share price) than its March 2020 lows when the market panicked over the emergence of COVID-19. But the company’s slowing growth makes it hard to call it a bargain today.
Is Shopify stock a buy now?
Admittedly, Shopify will continue to face challenges as more shoppers buy offline and investors grow leery of high valuations. Nonetheless, SFN gives the company a considerable advantage over software-oriented competitors.
Shopify may not recover quickly, but if high growth resumes and valuation declines a little more, it could be a survivor and a good long-term holding. Just keep in mind that: “don’t buy much right now”.