In just the past month, shares of Shopify (SHOP +3.69%) have surged more than 50%, making it one of the hottest investments to own lately. The company has been trimming its costs over the years, and with consumer spending still looking strong and resilient, the e-commerce stock has been benefiting from multiple positive developments.
Is it only a matter of time before the shares get back to $100?
Black Friday sales hit a new record
Shopify is a top e-commerce stock to own and its performance relies heavily on the state of the economy. And right now, economic conditions still look strong.
On Saturday, Shopify reported that its merchants sold $4.1 billion in products and services on its platform during Black Friday, a 22% increase from the previous year. The top-selling product categories included clothing, personal care, and jewelry.
On the next trading day (Monday), shares of Shopify jumped nearly 5%, reaching a new 52-week high.
NASDAQ: SHOP
Key Data Points
The stock still looks relatively cheap
This year has been a strong one for Shopify, which has more than doubled in value thus far. A more positive outlook for the economy has given investors a reason to be more bullish on the e-commerce specialist. But despite the stock's acceleration this year, a case can still be made that the stock isn't expensive when compared to its historical levels.
Shopify is trading at more than 14 times its trailing revenue, which is below the levels it has averaged over the past several years.
SHOP PS Ratio data by YCharts
While investors may have less of an appetite for the business in a higher interest-rate environment, the stock has normally commanded a much higher revenue multiple in the past.
Stronger financials could send the stock higher
Another reason Shopify looks like it may be undervalued is that the company's financials are improving.
Last quarter, which ended on Sept. 30, the company reported sales of $1.7 billion, which was a 25% increase from the prior-year period. And the more important improvement was on the bottom line, where Shopify reported an operating profit of $122 million. A year earlier, the company incurred an operating loss of $346 million.
Shopify's efforts to reduce operating expenses have been paying off. If it can continue to stay in the black while generating a high growth rate, there could be more room for the stock to rise even higher.
Another potential catalyst for the business is Shopify merchants being able to offer Buy with Prime -- a benefit normally reserved on Amazon's platform for Prime members, which provides free and fast shipping. The companies announced the agreement in August, allowing Shopify merchants to tap into Amazon's logistics network.
Is Shopify stock a buy?
For Shopify to hit $100, the stock would need to rise an additional 35% from where it started the week.
It hasn't been at that level since early 2022, when shares were on their way down. I'm confident the stock can reach $100 again but I'm not optimistic that it will happen soon. The economy isn't out of the woods, and until fears of a recession are gone and interest rates retreat, Shopify's stock might find it difficult to rise a lot higher.
But for buy-and-hold investors, this can still be a solid growth stock to hang on to. Now that Shopify's operations are leaner, there should be less volatility in its future earnings, making it a more attractive investment to hang on to for the long haul.
