Shopify Gains Traction This Holiday Season: Key Insights for Investors
As winter approaches, the holiday shopping season is heating up. While enjoying hot cocoa and festive gatherings, many are also thinking about their shopping lists.
With the year drawing to a close, retailers are pulling out all the stops to attract holiday shoppers. Among the various investment opportunities around holiday shopping patterns, Shopify (NYSE: SHOP) stands out as a prime e-commerce pick this December.
Let’s explore how Shopify is already thriving during this holiday season and consider the reasons it may continue to excel.
A Strong December on the Horizon for Shopify
The final weeks of the year are packed with major shopping events. Here’s a quick refresher:
- Black Friday (the day after Thanksgiving)
- Small Business Saturday (the Saturday after Thanksgiving)
- Cyber Monday (the Monday after Thanksgiving)
Throughout December, many retailers will offer promotions online and in physical stores. Plus, a good portion of holiday sales often extends past Christmas, catering to last-minute gift exchanges.
Shopify is already off to a great start this holiday season. According to company data, merchants using Shopify generated $11.5 billion in Gross Merchandise Volume from Black Friday to Cyber Monday, a 24% increase compared to the previous year. This marks a record achievement for the firm.
While that figure is impressive, there may be more to the story.
Recent years have presented challenges for consumers due to high inflation and rising interest rates. However, inflation rates are beginning to stabilize, and the Federal Reserve has started a policy of tapering interest rates. This may gradually restore consumer purchasing power.
The sales activity seen on Shopify during Black Friday and Cyber Monday suggests positive momentum as holiday shoppers finalize their purchases. Looking ahead, Emarketer forecasts a 5% growth in holiday retail sales for 2024, predicting a total of $1.4 trillion. With its strong online and in-store presence through POS system integrations, Shopify is well-equipped to capitalize on holiday shopping trends.
Image source: Getty Images.
Understanding Shopify’s Valuation
Evaluating Shopify as an investment presents its challenges, particularly regarding its valuation. Although the company is consistently generating positive net income and free cash flow, these metrics have not yet scaled to significant levels. Thus, using traditional profitability measures feels inadequate.
SHOP P/S Ratio data by YCharts
The chart above compares Shopify to several other e-commerce and retail companies based on the price-to-sales (P/S) ratio. Shopify emerges as the highest-priced stock among its peers and has experienced notable valuation growth in recent months.
While it’s clear that Shopify stock carries a steep price, further assessment will help determine whether now is an opportune moment to invest.
SHOP stock price data by YCharts
The chart illustrates changes in Shopify’s stock price from Thanksgiving 2023 (Nov. 23, 2023) through January 31, 2024. The stock saw a significant rise following Thanksgiving, maintaining momentum into the new year. However, the shares took a drastic downturn shortly after the holiday period.
This price movement suggests a momentum trade pattern. As a long-term investor, being swept up in a holiday-driven buying trend could lead to volatile fluctuations in Shopify’s stock value.
Though Shopify is a stock worth monitoring as the holiday season progresses, better entry points for investment may arise in the future.
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*Stock Advisor returns as of December 2, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Adam Spatacco has investments in Amazon, Block, and Shopify. The Motley Fool also has positions in and recommends Amazon, Block, Etsy, Shopify, Toast, and Walmart. The Motley Fool recommends Wayfair and eBay. A disclosure policy is in place.
The views and opinions expressed herein are the author’s and do not necessarily reflect those of Nasdaq, Inc.
