Shopify (NYSE: SHOP) stock fell into bargain-buy territory after a disappointing second-quarter earnings report. But the company's pivotal position in the e-commerce segment and a new partnership with Target make it an absolute steal at its current price.
If you're not familiar, Shopify is the second-largest cloud-based e-commerce software platform in America. It obviously trails Amazon, but it has still managed to capture 10% of the broader e-commerce market.
That might not sound like much, but you have to remember how big the e-commerce market is. Grand View Research estimates the U.S. e-commerce market was $25.93 trillion in 2023. And going forward, the firm anticipates a compound annual growth rate (CAGR) of 18.9% from 2024–2030, bringing the market to more than $83 trillion in six years.
That's a tremendous opportunity for Shopify, which helps retailers big and small create, manage, and grow online stores. That includes things like web design, inventory management, payment processing, analytics, and reporting.
That's all well and good, but this week the company kicked things up another notch with a new partnership with Target.
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You see, Target's online transactions lag far behind not just Amazon, but also its chief competitor, Walmart, as well. It's embarrassing, actually. Walmart's online sales are five times higher than Target's, standing at roughly $100 billion compared with $19.4 billion.
So the company clearly needs Shopify's help. The company's expertise will undoubtedly help Target improve its Target Plus online platform. And in return, Target will start carrying products from Shopify vendors.
Target is also bringing select products from Shopify merchants into its physical stores, giving the e-commerce company a brand-new physical presence in one of the country's top retail chains.
The deal is a win-win and it couldn't come at a better time.
Shopify stock has been flying high for a while. It shot from $46 per share in November to a high of $91 per share in February. However, a disappointing earnings report in May sent Shopify stock plunging 25%. It traded below $60 for weeks before climbing back up to its current level of $66.
That's an incredible bargain for a stock that could easily be back up near $100 per share by the end of the year. Its earnings report wasn't even that bad. In fact, it topped analysts' expectations on numerous metrics.
Shopify reported…
- A 23% increase in revenue, which totaled $1.9 billion.
- A 23% increase in gross merchandise volume totaling $61 billion.
- A 33.5% increase in gross profit ($957 million).
- And adjusted EPS of $0.20, topping projections by 18%.
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However, it was Shopify's outlook that raised doubts, as the company forecast revenue growth in the high teens annually, translating to year-over-year growth in the low to mid-20s.
That's obviously not bad, but it's not what analysts were hoping for, either. It fell short of the promise that carried Shopify stock to its $90 peak four months ago.
Still, I'd argue the sell-off was overdone. As I pointed out up top, the e-commerce market is massive and Shopify has carved out a nice little niche for itself. The deal with Target will expand on that, and recent developments in AI will too.
Indeed, Shopify has made some recent strides with AI tools that can be used to write product descriptions, promotional materials, and emails, and generate and enhance images.
So the company will continue to grow. In fact its total sales are expected to climb 20% this year and 19% in 2025. And its EPS is projected to jump another 24%, to $1.23, representing a 272% increase over the last five years.
Shopify stock will see a rise commensurate with that as a result. I'm not the only one who thinks so, either.
Goldman Sachs and JPMorgan both have a $74 price target on Shopify stock, while Evercore ISI pegs it a $75.
Those estimates are likely to prove conservative, too. If growth picks back up, the stock could well test $90 per share again.
Fight on,
Jason Simpkins
Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more...
In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor's page.
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