This Growth Stock Is a Once-in-a-Generation Buying Opportunity in a Bear Market

Investor sentiment has soured in response to high inflation and rising interest rates, causing the stock market to crater. The S&P 500 and the Nasdaq Composite have declined for three consecutive quarters -- something that last happened in 2009 -- and both indexes have dipped into bear market territory. That domino effect has erased trillions of dollars in wealth, but it has also created rare buying opportunities.

Shopify (SHOP 3.42%) is a perfect example. The Canadian company is rapidly becoming a cornerstone of the e-commerce industry, and management is executing on a growth strategy that could create tremendous value for shareholders in the coming years. Yet Shopify has seen its share price plunge 76%, marking its greatest loss of value at any point since its IPO in 2015.

That puts investors in front of a once-in-a-generation buying opportunity.

Disrupting the e-commerce industry

The Amazon marketplace played a significant role in popularizing e-commerce over the last two decades, but brands are increasingly interested in a direct-to-consumer (D2C) sales strategy, simply because it gives them a better shot at building lasting relationships with buyers. Shopify blends all of that functionality into an omnichannel interface. Its software integrates with popular marketplaces and social media platforms, but it also supports D2C websites and brick-and-mortar stores.

Shopify also provides a number of adjacent services, including payment processing, financing, and cross-border commerce tools. Merchants can also access thousands of integrations through the Shopify App Store, such as payroll and marketing software. In short, Shopify lets merchants manage physical and digital sales from a single platform, while providing value-added services that drive growth.

That value proposition has resulted in strong demand. According to G2 Grid, Shopify is the market leader in e-commerce software. Better yet, its platform accounted for 10.3% of online retail sales in the U.S. last year, making it the second-largest domestic e-commerce company.

That bodes well for the future. According to eMarketer, online retail sales in the U.S. will grow at 12% annually to reach $1.7 trillion by 2026.

Building a once-in-a-generation business

Management has set in motion an ambitious growth strategy that could eventually transform Shopify into a trillion-dollar company. Here's a look at its parts.

Shopify Fulfillment Network (SFN): The SFN is an ecosystem of warehouses, carriers, and last-mile delivery partners that simplify logistics across three critical phases of the supply chain: freight, distribution, and delivery.

First, shipping specialist Flexport will help merchants inbound freight more quickly and cost efficiently by allowing them to ship items at the pallet level (rather than entire containers). Second, that inventory will be routed through Shopify-operated distribution hubs, where artificial intelligence (AI) software will predict buyer demand and inform allocation decisions across smaller fulfillment centers.

Third, collaborative mobile robots will help fulfillment workers pick, package, and ship products when merchants receive orders. At scale, the SFN will support two-day delivery across the U.S. That could boost conversion rates by more than 30% for some merchants, according to Shopify President Harley Finkelstein.

Management expects the SFN to reach scale in late 2023 or early 2024, but Shopify has already reported strong momentum. In the third quarter, the number of merchants using at least one logistics service increased 80% on a sequential basis, and fulfilled orders soared 450% from the prior year.

Shopify Plus: Larger brands tend to be more profitable, so Shopify is pushing upmarket with Shopify Plus, a more customizable version of its commerce platform. Shopify recently debuted AI-powered marketing software for Plus merchants, and it added more robust business-to-business (B2B) commerce tools to the platform.

Merchants using the marketing software have already seen an uptick in conversion, but the B2B tools have even bigger implications. First, management estimates over half of existing Plus merchants could utilize B2B tools. Second, B2B capabilities should bring more brands to Shopify Plus.

Third, Shopify now has a much larger addressable market. According to eMarketer, B2B e-commerce sales in the U.S. alone will grow at 10% annually to reach $2.5 trillion by 2026.

Geographic expansion: Shopify offers localized subscription plans in over 200 countries, and it continued to bring adjacent services to new markets in the third quarter. Shopify now offers payment processing in 22 countries, it provides financing in four countries, and its point-of-sale platform is available in 14 countries. In short, Shopify has extended its purview well beyond North America, expanding its market opportunity.

According to current forecasts, retail e-commerce sales will grow at 10% annually to reach $7.4 trillion worldwide by 2025, while global B2B e-commerce sales will grow at nearly 20% annually to reach $33 trillion by 2030.

Trading at a bargain price

Economic uncertainty has been a headwind for Shopify, and growth has slowed as high inflation has stifled consumer spending. But management has continued to invest in product innovation and geographic expansion. That combination has led to underwhelming financial results this year, causing some investors to lose confidence. But economic headwinds are temporary, and management's growth strategy makes the bull case crystal clear.

Shopify is the market leader in e-commerce software. Its ability to simplify sales across physical and digital channels, while empowering merchants with D2C and B2B capabilities, distinguishes it from commerce giants like Amazon. That leaves Shopify well positioned to take share in a multi-trillion-dollar market. To that end, while its market cap currently sits at $50 billion, if things go just right for Shopify, a $1 trillion valuation is plausible a decade or two down the road.

Currently, shares of Shopify trade at 9.78 times sales, a bargain compared to the five-year average of 29.7 times sales. That's why this growth stock is worth buying today.