E-commerce stocks have had a tough go of it lately. In addition to macroeconomic pressures that have generally worked to depress share prices for companies with growth-dependent valuations, businesses in the space have faced the evaporation of pandemic-driven demand and other challenges. Despite still being a leading provider of online-retail services, Shopify (SHOP 1.80%) has fallen 23% over the past year and roughly 75% from its lifetime high.

On the heels of big sell-offs, should investors be snatching up Shopify shares? Read on to see why two Motley Fool contributors come down on opposing sides of the debate on what comes next for the stock. 

A mini shopping cart and packages on top of a tablet.

Image source: Getty Images.

Shopify's forward-looking valuation is justified

Keith NoonanShopify has played a leading role in the growth of the e-commerce industry. The company's services make it easy for businesses big and small to open, modify, and scale online retail stores, and the value proposition of these services has helped the business scale at a rapid pace.

In addition to its core web-store creation and maintenance services, the company has also launched payment-processing and loan services for businesses. It's also branching into the fulfillments space. These offerings put the business in an excellent position to continue driving and benefiting from the growth of online retail. Of course, building out its warehousing and fulfillment network will be somewhat cost intensive at a time when many companies are looking to trim expenses and investors have generally become more cautious, but the move could have big payoffs down the line.

The move into fulfillment positions Shopify to be a one-stop provider for all of its customers' e-commerce service needs. In addition to opening up long-term growth opportunities, the move also looks smart from a defensive standpoint. Amazon and other rivals already have large fulfillment networks, and there's a risk that they could leverage these strengths to move in on Shopify's turf. Approximately 561 million unique customers made purchases through a Shopify-powered store last year, and it makes sense for the e-commerce specialist to offer a comprehensive batch of solutions to make sure that merchant partners remain on board with its services.

The push into fulfillment should help the company attract new business from existing brick-and-mortar business and also help fend off potential challengers in its corner of the e-commerce services market. Despite headwinds right now, analysts at Morgan Stanley estimate that the annual global online retail market will expand from $3.3 trillion in 2022 to $5.4 trillion in 2026.

With a market capitalization of roughly $53 billion, Shopify is still valued at roughly eight times this year's expected sales. With its admittedly growth-dependent valuation, it's not shocking that the e-commerce services provider has seen substantial valuation contraction as investors have generally turned their backs on companies that trade at forward-looking multiples. But Shopify is a great business with a strong management team and plenty of growth opportunities ahead, and there's good reason to believe that the stock offers substantial upside for long-term investors at current prices.

Shopify's investing is weighing on profits

Parkev Tatevosian: Shopify was one of my favorite stocks until the company transitioned away from its asset-light business model and invested billions of dollars in its fulfillment services. In the long run, this may be a wise move on Shopify's part, but the action is risky and expensive. It makes investing in Shopify stock more like investing in Amazon and less like inesting in eBay. Don't get me wrong: Amazon is a great business, but its profit primarily comes from its web services segment, not from e-commerce and fulfillment.

Shopify is spending billions on rolling out fulfillment services, and that partly explains why its operating income fell to a loss of $822 million in 2022, down from an operating income of $269 million in 2021. That's despite 21.5% revenue growth in the year.

SHOP Operating Margin (TTM) Chart

SHOP Operating Margin (TTM) data by YCharts

Similarly, while Amazon's revenue has exploded over the past decade, it has maintained a skinny operating margin. With its asset-light business model, eBay may not have explosive revenue growth, but its profit margin is multiples of Amazon's.

I was disappointed in Shopify's investment in fulfillment. Some of you reading this might feel the same way. The future may turn out to prove Shopify correct in its decision. However, the path will be treacherous, and with Amazon as an example, the reward for investing in fulfillment seems limited.  

Is now the right time to buy Shopify?

For risk-tolerant investors willing to ride out potential volatility, Shopify's big valuation pullback may present a worthwhile buying opportunity. On the other hand, the company's costly push into fulfillment services comes at a time when expensive growth initiatives are out of favor with the market, and it's possible that macro trends could continue to weigh on the e-commerce specialist's valuation. Investors should weigh their personal risk tolerance and expectations for the company's long-term growth outlook to determine whether Shopify makes for a sensible portfolio addition right now.