Investing in high-flying progress shares allows you to derive outsized positive aspects over the long run. For example, between its preliminary public providing and the bear market of 2022, shares of Shopify (TSX:SHOP) surged by a staggering 6,500%. Furthermore, at its peak in late 2021, SHOP inventory was the most important TSX firm by way of market cap.

However when market sentiment turns bearish, progress shares are pummelled, driving their valuations considerably decrease.  In 2022, Shopify inventory traded 80% beneath all-time highs, wiping off investor wealth at a fast clip.

On the time of writing, Shopify is valued at a market cap of $87.3 billion and has gained 48% yr thus far. Let’s see if you happen to ought to add SHOP inventory to your fairness portfolio in February 2023.

Is Shopify inventory a purchase or promote?

Just like most different e-commerce gamers, Shopify thrived amid the COVID-19 pandemic. The Canadian tech stalwart elevated gross sales from US$1.6 billion in 2019 to US$4.6 billion in 2021.

After a pandemic-fueled rally, SHOP inventory has trailed the broader market by a large margin within the final yr because of a deceleration in income progress and falling revenue margins. In 2022, analysts anticipate Shopify to extend gross sales by 20% yr over yr to $7.4 billion. Whereas its backside line would possibly sink to a lack of $0.06 per share in comparison with earnings of $0.85 per share in 2021.

The reopening of economies and decrease shopper spending, along with a difficult macro-environment, have acted as headwinds for Shopify in current months.

Nevertheless, over the long term, Shopify stays a high guess for a number of causes. First, it’s a part of the quickly increasing e-commerce market. It will permit the corporate to extend gross sales at a constant tempo going ahead. Regardless of a slowdown, Shopify is on observe to report income of $8.8 billion in 2023, an uptick of 20% yr over yr.

Second, Shopify is the second largest e-commerce platform in North America, offering it with a large financial moat. And at last, the tech heavyweight continues to broaden its portfolio of merchandise and options to enhance the engagement of its service provider base. Shopify has allotted vital assets to construct a community of success centres to streamline the provision chain of retailers on its platform.

We will see why I stay bullish on the long-term prospects of Shopify. However let’s check out its valuation as properly.

Is SHOP inventory undervalued?

Buying and selling 70% beneath report highs, Shopify inventory is priced at 9.9 instances 2024 gross sales, which is kind of steep in comparison with its friends. But it surely’s properly beneath Shopify’s historic estimates because the inventory traded at a median of 30 instances ahead gross sales previous to the sell-off.

Traders are additionally fearful about Shopify’s falling revenue margins. However the firm continues to sacrifice income for income progress. But, as soon as its cost-base shifts decrease, it could actually profit from excessive working leverage.

Shopify inventory will most definitely decline within the case the broader markets expertise one other spherical of sell-offs in 2023. However for these with an funding horizon of 10 years, it is smart so as to add this tech inventory to your fairness portfolio proper now.