Shopify (SHOP 1.11%) is one step closer to the finish line of its highly publicized stock split. At the Annual and Special Meeting of shareholders held on June 7, shareholders approved the measure, setting the stage for its 10-for-1 stock split to take place later this month.
Let's look at a few key dates shareholders should know and review the available evidence to decide if Shopify stock is a buy.
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Mark your calendar
Shopify's regulatory filing provided several key dates for investors to add to their calendars.
The first date was the annual meeting that took place on June 7, when shareholders voted on the stock split, as well as a variety of other measures. These included the election of the company's board of directors and the approval of its auditor. Shareholders also considered an overhaul of Shopify's governance structure, ultimately approving the 10-for-1 stock split and the creation of a founder share, which will allow CEO Tobi Lütke to control 40% of the total voting power of the company going forward -- maintaining the level of control he has now.
The second key date provided by Shopify's management is the so-called "record date." Each shareholder of record as of the close of business on June 22 will be entitled to participate in the upcoming stock split, receiving nine additional shares for every share they own.
The third key date is the distribution date. After the close of trading on Tuesday, June 28, each shareholder will receive the newly minted shares. This officially occurs after the market close, and the additional shares will automatically be deposited into shareholders' brokerage accounts. If you're already a Shopify stockholder, you don't need to take any other action to receive your additional shares. However, it's important to note that there can be a lag that varies from brokerage to brokerage, so it may take a day or two for the additional shares to show up in your account.
Finally, Wednesday, June 29, is the date Shopify will begin trading at its post-split price. Investors should expect shares to trade at roughly one-tenth of the price before the split occurred.
But is the stock a buy?
There's little question that Shopify has become synonymous with digital retail, and early investors were treated to mind-boggling returns, with the stock up more than 1,300% since its IPO in 2015 -- even in the face of its recent decline. Yet with the stock split on the horizon, investors are wondering if Shopify stock is a buy.
In the wake of the accelerating adoption of e-commerce that accompanied the pandemic, Shopify's growth appears to have slowed to a crawl, but it's important to put its recent results into context. In the first quarter, total revenue grew just 22% year over year, but that was on top of 110% revenue growth in the prior-year quarter. At the same time, gross merchandise volume (GMV) grew 16%, but that was also the result of tough comps, as GMV soared 114% in the year-ago quarter. Over the next couple of quarters, comps should normalize, making way for more historical growth rates to resume.
Additionally, Shopify stock has gotten caught up in the recent correction and tech-centric bear market. Many stocks with frothy valuations were punished as the market fell, and Shopify was no different, with shares down more than 75% from their November high. This has pushed Shopify's price-to-sales (P/S) ratio below 10, its lowest level since early 2017. Looking ahead one year, its valuation is even more compelling, with a forward P/S ratio of roughly 6.
Finally, while online sales growth has slowed somewhat from the blistering pace of the past couple of years, digital retail isn't going away. Worldwide e-commerce sales hit an estimated $4.9 trillion in 2021 and are expected to climb to nearly $7.4 trillion by 2025. As the leading provider of e-commerce services for merchants, Shopify is well-positioned to benefit from this ongoing secular trend.
Given its dominant industry position, its strong growth -- even in the face of tough comps -- and its historically low valuation, Shopify stock is undeniably a buy heading into its stock split.
