The growth stock is likely down due to a combination of a tough day in the overall market and another price-target cut on Shopify shares from an analyst.
Shopify (TSX: SHOP) (NYSE: SHOP) continues to drop after a new algorithm change continues to hurt developers, and they’re not standing for it. Shopify (TSX: SHOP) (NYSE: SHOP) saw shares drop more than 8% on Thursday, reaching lows not seen since last May., and the reason? Developers came in droves against Shopify’s new developments in its app store.
Should you pay up for Shopify stock?
Historically, paying up for Shopify stock has worked well, given that shares are up over 1,000% in the last five years. However, at the start of this big run-up, Shopify’s price-to-sales ratio (P/S) was only around 15-20, while today it sits at 26. The company is also doing much more in annual revenue now, at $4.
This begs the question “Is it time to buy the dip on Shopify stock?”
Like many high-growth stocks, Shopify (NYSE: SHOP) has taken a beating over the past three months. Shares are down 42% since late November and are now down almost 25% in the last 12 months. Plenty of smart investors are saying that now is the time to buy the dip on Shopify stock.
Couple that with the fact that governments will eventually pull their stimulus programs and you can see why Shopify’s growth this year could be subdued. In short, Shopify stock is pricing in growth that may fall short of expectations. Another factor that could dash expectations is competition from Amazon’s biggest rival: Amazon.
If nothing has fundamentally changed with these companies, then the best course of action is likely to hold onto your shares and wait out the volatility.
Shopify’s trailing-12-month revenue is around $4. 2 billion and growing 46% year over year. Its market cap is currently $111 billion. If you’re optimistic about Shopify’s business prospects, you might expect revenue to grow at 30% over the next few years (the percentage growth numbers will come down as the absolute dollar numbers balloon in size).
What happened to the Shopify algorithm update?
The new update included algorithm updates for how Shopify recommends applications that help fill Shopify’s platform. When introduced in mid-December, developers quickly realized there was something very wrong with the update.
Why does Shopify need developers?
And this is all super important if you’re a new merchant looking to find the right customization for the right price. Shopify has more than 7,000 apps in its App Store to help design their platform. Therefore, Shopify needs developers to attract and keep merchants.