Shopify (SHOP -5.62%) has transformed e-commerce and made it possible for millions of merchants to compete with large retailers. It has demonstrated incredible growth for years, and it still has a long way to go. E-commerce is still increasing as a percentage of total retail sales, and Shopify is well-positioned to benefit from that trend.

It's also experienced a few hiccups along its journey, which isn't anything out of the ordinary for a growth company. It's how a company deals with challenges which often determines whether or not you should buy its stock. Let's see where Shopify is going and if its stock is worth buying right now.

The top e-commerce solution for millions of clients

Shopify has created the No. 1 turnkey e-commerce solutions, with several different packages targeting every stripe of online retailer. Originally the source for small businesses that needed a simple way to get their wares on the web, it now offers sophisticated marketing, analysis, financial, and operating solutions and works with high-level enterprise clients.

The customization is an attractive feature for many clients, who choose various widgets that add value to their businesses, like cross-border shipping and translation options. Some of its large clients come just for ancillary services, like digital payments processing and point-of-sale systems. 

The customization aspect, in its many forms, is a key growth lever right now. Shopify recently launched a new initiative called commerce components, which allows clients to choose stackable services that integrate into whatever systems they're already using. This is a further development of the packages it offers, which give clients the freedom to use Shopify's many capabilities to grow their businesses. For example, monthly recurring revenue increased 10% over last year, in part due to more Shopify Plus merchants converting its POS devices in physical stores.

Growth exploded at the beginning of the pandemic when small businesses realized they had to get online to make sales, and Shopify became profitable very quickly. Like many other companies at the time, it changed its growth strategy and built out its business to meet and capture demand, and profitability has suffered in the aftermath. 

Growth is still robust, and the excellent first-quarter results demonstrate that Shopify's story is still ongoing. Despite the pressured retail environment, gross merchandise volume (GMV) increased 15% over last year to $49.6 billion, and revenue increased 25% to $1.5 billion. Management is guiding for similar growth metrics in the second quarter.

Admitting mistakes and cutting its losses

Part of the company's shift during the pandemic's height was to change its strategy to encompass a wider range of e-commerce services -- namely, fulfillment and delivery. That's a natural next step for a company that provides the full gamut of e-commerce solutions. But here it was a misstep, and it's contributing to crushed profits.

Shopify acquired Deliverr for $2.1 billion just last July. In May, it announced that it's selling most of its logistics business to logistics technology company Flexport, for a 13% stake in the company. Now it's focused on its core business of e-commerce solutions and serious about driving efficiency. Some of the actions it's taken, in addition to the fulfillment business sale, are cutting headcount and raising prices.

Is this pricey stock worth it?

I've been hesitant to recommend Shopify stock over the past few years because it's been very expensive, with growing losses to show for it. But its stock price has fallen as revenue is rising, and it's now trading at a much more reasonable valuation. Shares are valued at 13 times trailing 12-month sales, which isn't cheap, but that's a valuation that could reasonably match Shopify's prospects.

A year from now, Shopify should be a leaner company focused on the e-commerce solutions it's best at, with increasing sales and improving profitability. Investors should still be cautious about the valuation, since the stock is already up 72% this year. But right now, it still looks like a buy.