Is Shopify Inc. (SHOP) a Good Investment at This Time?

Shopify: Recent Performance and Outlook

Shopify (SHOP) has recently attracted significant attention from investors, making it one of the most frequently searched stocks on Zacks.com. Let's review some key factors that may influence Shopify's stock movement in the near future.

Recent Stock Performance

Over the past month, Shopify's share price has dropped by 12.3%, while the Zacks S&P 500 composite index saw a modest gain of 0.6%. The Internet - Services sector, which includes Shopify, declined by 8.1% during the same period. This raises the question: what could be next for Shopify's stock?

What Drives Stock Trends?

Although news headlines and speculation can cause short-term swings in a company's share price, long-term investors often focus on fundamental factors. These underlying elements tend to have a more lasting impact on a stock's value.

Earnings Estimate Revisions

Zacks places strong emphasis on changes in earnings forecasts, as the expected future earnings stream is a key driver of a stock's fair value. When analysts revise their earnings estimates upward, it often signals improving business prospects and can attract more investors, potentially lifting the stock price. Research has shown a close relationship between earnings estimate trends and short-term stock price movements.

• For the current quarter, Shopify is projected to earn $0.32 per share, representing a 28% increase compared to the same period last year. However, the consensus estimate has decreased by 2% over the past month.
• The full-year earnings estimate stands at $1.74 per share, up 48.7% year-over-year, but this figure has been revised down by 3.8% in the last 30 days.
• Looking ahead to the next fiscal year, analysts expect earnings of $2.18 per share, which would be a 25.4% increase from the prior year. This estimate has edged up by 0.8% in the past month.

Zacks' proprietary ranking system, which incorporates earnings estimate revisions and other factors, currently assigns Shopify a Rank #3 (Hold), suggesting the stock may perform in line with the broader market in the near term.

The following chart illustrates the trend in Shopify's forward 12-month consensus EPS estimate:

Revenue Growth Projections

While earnings growth is crucial, sustained revenue increases are essential for long-term profitability. For Shopify, the consensus estimate for current-quarter revenue is $3.08 billion, reflecting a 30.6% year-over-year rise. Projections for the current and next fiscal years are $14.51 billion and $17.72 billion, representing annual growth rates of 25.6% and 22.1%, respectively.

Recent Results and Earnings Surprises

In its most recent quarter, Shopify reported revenue of $3.67 billion, up 30.6% from the previous year. Earnings per share came in at $0.46, compared to $0.44 a year earlier. Revenue exceeded the consensus estimate by 2.55%, while EPS fell short by 8%. Over the past four quarters, Shopify has beaten revenue estimates each time but surpassed EPS expectations only once.

Valuation Analysis

Evaluating a stock's valuation is essential for making informed investment decisions. Comparing current valuation ratios—such as price-to-earnings, price-to-sales, and price-to-cash flow—to historical averages and industry peers helps determine whether a stock is fairly priced. Zacks' Value Style Score, which grades stocks from A to F based on various valuation metrics, currently assigns Shopify an F, indicating the stock is trading at a premium compared to its peers.

Conclusion

The information above, along with additional resources available on Zacks.com, can help investors decide whether to pay attention to the current market buzz around Shopify. Given its Zacks Rank #3, Shopify is expected to perform similarly to the overall market in the short term.

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