High inflation has hit the stock market like a wrecking ball this year. The S&P 500 delivered its worst first-half performance in five decades, and the broad-based index has dipped into bear market territory. But many individual stocks have slipped even further as investor sentiment has soured.
For instance, Amazon (AMZN -0.15%) and Shopify (SHOP 1.73%) have seen their share prices plunge 45% and 80%, respectively. Amazon has never lost that much value at any point in the past decade, and Shopify has never lost much that value in its history. Of course, things may get worse in the near term, but this is still a perfect buying opportunity for investors.
Amazon: The most-visited online marketplace in the world
Macroeconomic headwinds continued to plague Amazon in the third quarter. Revenue growth of 15% missed estimates, net income dropped 9%, and fourth-quarter guidance fell short of Wall Street's forecast.
Those results are certainly disappointing, but they are not unexpected. High inflation is hitting the business from both sides. Customers are spending less, and Amazon is paying more for its logistics business and data center operations as fuel and electricity have skyrocketed in price over the past year. But those headwinds don't change the long-term investment thesis. Amazon is still a key player in three quickly growing industries.
In e-commerce, Amazon operates the most-visited online marketplace, and it ranked as the second-largest digital retailer in the world last year as measured by gross merchandise value. That bodes well for the future. Retail e-commerce sales are expected to grow at almost 10% annually to reach $7.6 trillion by 2028, according to Grand View Research. But Amazon's most exciting opportunities lie in the higher-margin markets of cloud computing and digital advertising.
On that note, Amazon Web Services is the leader in cloud infrastructure, holding more market share than Microsoft Azure and Alphabet's Google Cloud combined. And cloud computing spend is expected to grow at 15.7% through the end of the decade, according to Grand View Research.
Finally, Amazon is the fourth-largest digital advertiser in the world, but eMarketer says it nearly led the world in ad revenue growth last year. With that in mind, digital ad spend is expected to grow at 9.2% annually through the end of the decade, according to Precedence Research, but investors should expect Amazon to continue topping that trajectory.
In short, Amazon is set to grow revenue at a double-digit pace for years to come, which makes its current valuation of 2.1 times sales a reasonable price to pay. In fact, that multiple is much cheaper than the three-year average of 3.8 times sales. That's why this beaten-down growth stock is worth buying.
Shopify: The most popular e-commerce software platform
Shopify is the market leader in e-commerce software. That success stems from the broad scope of its simple yet powerful platform. With Shopify, retailers can grow their businesses across brick-and-mortar locations and a variety of digital channels, including direct-to-consumer websites, online marketplaces, and social media. Retailers can also access solutions for payment processing, financing, cross-border commerce, and money management, among others.
That robust offering has made Shopify a key player in e-commerce. In fact, it powered 10.3% of retail e-commerce sales in the U.S. last year, second only to Amazon.
Financially, Shopify has struggled as consumer demand has waned in response to high inflation. The company managed to beat Wall Street's estimates in the third quarter, but results were still somewhat disappointing. Revenue climbed 22% to $1.4 billion -- a deceleration from 46% growth in the same quarter last year -- and the company posted a non-GAAP loss of $0.02 per diluted share, down from a non-GAAP profit of $0.08 per diluted share.
However, investors have good reason to believe Shopify will regain its momentum as inflation normalizes. The company has a long runway for growth. As mentioned earlier, retail e-commerce sales are expected to grow at almost 10% annually to reach $7.6 trillion by 2028, and management has outlined an ambitious strategy.
Most notably, the company is building the Shopify Fulfillment Network (SFN) across the U.S., a network of warehouses, carriers, and delivery partners that will simplify all aspects of logistics: inbounding inventory from suppliers, distributing inventory to fulfillment centers, and shipping products to buyers. In doing so, the SFN will provide businesses with affordable access to one-day and two-delivery options, helping them provide a better experience for buyers. Management expects the project to reach scale in late 2023 or early 2024.
On that note, the SFN should also help Shopify with a second growth initiative: driving adoption of Shopify Plus, its platform for larger businesses. As part of its push upmarket, Shopify recently added AI-powered advertising software and business-to-business commerce (B2B) tools to its Plus platform. That greatly enhances Shopify's addressable market. According to Grand View Research, B2B e-commerce sales will grow at nearly 20% annually to reach $33.3 trillion by 2030.
Currently, shares trade at 8.7 times sales -- an absolute bargain compared to the three-year average of 36.3 times sales. That why this growth stock is a buy.