Is Shopify Stock Worth Buying in 2024?

2 min read | February 27, 2024 12:00 AM EST | By Team Kalkine Media

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Is Shopify Stock Worth Buying in 2024? — Image source: shutterstock.com

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Shopify (TSX:SHOP) recently faced downward pressure on its stock price following its fourth-quarter (Q4) results, despite surpassing earnings expectations. In Q4 2023, the company reported revenue of US$2.14 billion and adjusted earnings of US$0.34 per share, beating Wall Street estimates. However, the stock experienced a decline of over 17% post-earnings, mainly attributed to its conservative guidance for 2024. Shopify projected a revenue growth of 25% to 30% in Q1, indicating a slowdown in growth. Investors interested in TSX tech stocks may find it essential to monitor Shopify's performance and the broader tech sector to make informed investment decisions.

The company reported a free cash flow of US$446 million in Q4, translating to a 21% margin, but expects operating costs to rise, forecasting a free cash flow margin of less than 10% for the year, lower than consensus estimates. Despite this, Shopify has successfully expanded its ecosystem, attracting two million merchants and introducing AI-powered services, driving revenue growth from US$2.92 billion in 2020 to US$7 billion in 2023.

Navigating an uncertain macro environment, Shopify aims to improve profit margins and generate positive cash flows consistently. In Q4, it reported a net income of US$657 million compared to a loss of US$623 million in the same period last year. Analysts expect adjusted earnings to grow significantly from US$0.73 per share in 2023 to US$7.6 per share in 2028, representing an annual growth rate of nearly 60%.

Currently trading at 73 times forward earnings, Shopify's potential upside lies in its future growth trajectory. Analysts, with varying recommendations, have set an average target price of US$81.44, implying an 8.5% upside from the current price. Despite recent challenges, Shopify remains positioned for long-term outperformance, having delivered significant returns since its IPO in 2015. Thus, despite near-term concerns, Shopify presents an attractive opportunity for investors aiming for substantial growth in the coming decade.

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