Soon after the onset of Covid-19, Canada-based e-commerce platform provider Shopify (NYSE:SHOP) became a darling on Wall Street. Over the past year, however, SHOP stock has been in free fall and investors shouldn’t try to catch this proverbial falling knife.
Changing times call for changing investment strategies. In 2020, many businesses opted to sell their goods online due to Covid-19 lockdowns. This certainly benefited Shopify and its shareholders, but the Covid-19 catalyst doesn’t have the same power in 2022.
Still, some value seekers might look at Shopify shares and envision a great bargain. Buying them now could be a costly mistake, though, as Shopify’s financial data and forward guidance just don’t seem to measure up to Wall Street’s expectations.
What’s Happening with SHOP Stock?
The bigger they are, the harder they fall. This is often true in the financial markets when stocks get way ahead of themselves. SHOP stock provides a textbook example of this, as it soared from $350 to $1,700 during the e-commerce boom but recently fell back to the $350 level.
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Believe it or not, the Shopify share price actually broke below the pre-Covid-19 peak of $530. This was unimaginable during the hype phase, but hype isn’t meant to last forever. Along the way, some folks probably learned a harsh lesson about buying stocks after vertical rallies.
Speaking of valuable lessons, let’s not forget that just because a stock has declined, this doesn’t always mean that it’s a bargain. Sure, SHOP stock is trading far below its peak price. Yet, Shopify’s trailing 12-month price-to-earnings ratio is 288.77. This suggests that the share price, even after its severe reduction, still isn’t justified by Shopify’s earnings.
Falling Short of the Bar
Staying on the topic of earnings, informed investors deserve a closer look at Shopify’s recent financial performance. So, let’s see what the hard data tells us, in comparison to Wall Street’s expectations.
Shopify’s first-quarter 2022 revenue of $1.2 billion might seem impressive at first glance. Let’s not jump to any hasty conclusions, though. Analysts tracked by FactSet expected $1.24 billion, so the actual result isn’t anything to write home about.
Next, Shopify reported a quarterly net earnings loss of $1.5 billion, which translated to $11.70 per share. That’s drastically worse than the positive net income of $1.3 billion, or $9.94 per share, which Shopify recorded in the year-earlier quarter.
As Jefferies analyst Samad Samana concisely expressed, swinging from a profit to a loss cast a gloomy shadow over Shopify even during amid muted expectations.
“While investors were braced for a shortfall, particularly after weakness at other e-commerce companies, SHOP’s Q1 still fell short of the lowered bar,” Samana stated.
What You Can Do Now
Between Shopify’s sky-high price-to-earnings ratio and the company’s earnings shortfall, it’s difficult to recommend investing in this particular e-commerce company.
Even at pre-Covid-19 prices, SHOP stock isn’t really a bargain. It’s fine to envision a strong future for online commerce, but Shopify’s widening financial loss means that traders should shop around and find a better deal.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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