There's no denying that the past few weeks have been rough on investors. Stocks were already peeling back from a rally effort as of late last month. Headlines suggesting the U.S.'s banks may be slipping into a liquidity crisis only fanned the bearish flames. The S&P 500 currently sits 8% below February's peak, and is seemingly still moving lower. Lots of stocks are losing even more ground.

If you're willing to take a closer look at the situation, however, you'll likely see many of these biggest losers don't deserve the degree of beating they're taking. E-commerce platform provider Shopify (SHOP -0.56%) is one of these tickers, down a hefty 20% from January's high. The selling largely ignores how big 2023 and 2024 could be for this young company.

Right idea, wrong time

As the old adage goes, timing is everything. But, first things first.

On the off chance you're not familiar with it, Shopify helps would-be online retailers set up online shops. Plenty of its customers are "mom and pop" operations working out of a garage. Plenty of its other client companies, however, are well-recognized brand names. Bombas, Staples, Jenny Craig, and Lord & Taylor are just some of its clients looking for a more cost-effective and flexible alternative to Amazon as an online sales medium.

The market for such a service grew slowly for years, but it outright exploded in the wake of the COVID-19 pandemic. So did Shopify's stock. Indeed, the stock's rally was so big that Shopify's impressive growth at the time still couldn't justifiably sustain the then-lofty price. Shares crashed last year, and are still floundering in the shadow of the steep sell-off. The rebound effort that looked like it was taking shape in October ultimately buckled in February thanks to renewed worries over lingering inflation and economic weakness.

What's mostly being missed by investors right now, however, is just how close this company is to getting over several different fiscal humps preventing it from reaching its full profit potential. This may be changing soon, though, finally rekindling the stock's distant-past bullishness as a result.

Again, timing is everything.

Better days ahead

It's not difficult to figure out the forces holding Shopify and its client companies back. One of the biggies is inflation. While its customers (and their customers) bore the brunt of sky-high shipping costs, Shopify has direct expenses of its own, like payroll and technology needs. These things haven't gotten any cheaper over the past couple of years.

All these climbing costs may finally be curbed. Just this week the Bureau of Labor Statistics reported that for the first time in well over a year, the wholesale costs paid by the U.S.'s manufacturers and service providers fell from one month to the next. While still up 4.4% year over year (excluding the ever-volatile prices of fuel and food), that too is a multi-month low pace of price growth.

The report surfaced on the same day oil prices tumbled more than 4% to lows not seen since 2021, suggesting gasoline and diesel prices may soon be coming down as well. This in turn should make shipping charges for online purchases at least a little more palatable.

Person at office desk looking at charts on computers.

Image source: Getty Images.

Consumers are catching a price break too. Although still experiencing broad price increases, last month's annualized core consumer inflation rate of 5.5% is the lowest the figure's been since late 2021. This should leave at least a few more discretionary dollars in people's purses and wallets going forward.

That's not the only reason Shopify may fare better later this year and next year than investors collectively expect. Also keep in mind that the company it is today isn't quite the company Shopify was as recently as last year. Just within the past few months, the organization unveiled two new tools for sellers. Shopify Functions allows merchants to inject their own customized coding into the company's provided platform, while the release of a toolkit called Commerce Components allows retailers to use certain portions of Shopify's tech by integrating them with that merchant's existing e-commerce platform.

These adaptations -- perhaps better described as evolutions -- provide the flexibility that direct-to-consumer outfits increasingly want.

And they've got good reason to want it. Despite all the economic headwinds that could be standing in the industry's way, the direct-to-consumer (or DTC) market is still growing like a weed. The United States' total DTC sales are projected to grow 17% this year to reach a tally of $182.6 billion, according to numbers from eMarketer, with similar growth to $213 billion expected next year.

The end result of this convergence of bullish factors? Analysts don't expect them to move the profit needle much this year. But, with continued cost containment paired with its smart growth initiatives, Shopify's earnings are expected to climb to $0.21 per share in 2024, and then continue climbing to twice that in 2025.

Chart showing how Shopify's revenue and operating earnings are expected to double between now and 2025.

Data source: Thomson Reuters. Chart by author. Revenue and EBITDA figures are in millions of dollars.

How's this happening? Simply put, Shopify is nearing a sustainable critical mass of revenue and earnings. That's what was missing between 2019 and 2021. The business was firing on all cylinders then. It just wasn't sustainable in the face of soaring inflation, and without the new e-commerce tools that Shopify now offers its client companies.

Sooner or later, and sooner than later

Do be aware that there's a wild card in play -- the risk of marketwide weakness stemming from the failure of SVB Financial's Silicon Valley Bank. It's exposing other banks' potential liquidity risks, and investors are at least entertaining the idea that it could infect other aspects of the global economy. As long as those doubts exist, Shopify shares have the potential to struggle.

The headlines casting this shadow of doubt on most banks at this time, however, may be more bark than bite. The more time that passes without news of any other bank failures, the better investors will feel, and the easier it'll be for stocks like Shopify to start hammering out a recovery. The company's compelling backstory and foreseeable future are already in place, just waiting for that to happen.