Shopify (SHOP 3.24%), with its fast-growing e-commerce platform, has been a popular stock among tech sector investors over the past couple of years. The company experienced phenomenal growth over the past year as enormous numbers of brick-and-mortar businesses shifted their focus to online sales during the pandemic. But now, some investors are wondering whether its fantastic run has come to an end.
To figure out whether or not Shopify is still a great tech stock to buy, let's consider the company's e-commerce opportunity.
Image source: Getty Images.
The e-commerce revolution is far from over
There's no denying that the pandemic led to the accelerated adoption of e-commerce among both merchants and consumers. And Shopify's management acknowledges that as more people go back to doing more of their shopping in person in 2021, the pace of e-commerce growth will slow down.
But don't make the mistake of thinking that the company's growth will completely stop. Shopify's management said in the company's fourth-quarter earnings call that they anticipate merchants will still join the company's platform this year in a number "higher than any year prior to 2020."
This expectation that growth will continue is a reflection of the larger retail trend toward e-commerce. Consider that even in 2020, e-commerce sales accounted for just 14% of all U.S. retail sales, up from 11% in 2019.
Sure, there will likely be a decline in some e-commerce spending when the pandemic is over and stores begin to open back up. But the bigger picture here is that e-commerce was already growing long before the pandemic happened, and it'll continue growing afterwards. Take a look at the chart below and you'll see that the percentage of e-commerce sales is accelerating, from about 6% of total U.S. retail sales in 2013 to an estimated 19% in 2024.
Data source: Statista and U.S. Census Bureau.
Shopify has more than 1.7 million sellers on its platform now, up from 500,000 less than four years ago. Even when the pandemic is in our rearview mirror, the ongoing rise of e-commerce will continue, and Shopify's platform will attract more merchants looking for an efficient way to take part in it.
Why Shopify's stock slid
What makes Shopify stock especially tempting for tech investors right now is that its share price has fallen sharply over the past month and a half. It's down 30% from its 52-week high right now, with a big drop occurring just after the company reported its most recent quarterly results in mid-February.
Investors may have gotten spooked because Shopify's management said that "some consumer spending will likely rotate back to offline retail," but long-term investors should see a buying opportunity.
Shopify's management still believes it'll add new merchants faster than it did before the pandemic started. And, at the same time, the e-commerce market is still in its youth.
When you factor in Shopfiy's recently discounted share price and the fact that the company will continue tapping into a growing online sales market, this stock still looks like a good buy.
Think years, not months
Tech stocks have been volatile lately, and Shopify shares could experience some additional price swings. The important thing for investors to remember is that Shopify's fundamental business is very much intact, and investors who hold onto the company's stock over the long haul should benefit from its leading position in e-commerce.
