What a brutal six months it’s been for Shopify. The stock has dropped 29.1% and now trades at $119.50, rattling many shareholders. This might have investors contemplating their next move.
Following the drawdown, is now a good time to buy SHOP? Find out in our full research report, it’s free.
Why Are We Positive on Shopify?
Starting with just three people selling snowboards online in 2004, Shopify (NASDAQ: SHOP) provides a comprehensive platform that enables merchants of all sizes to create, manage and grow their businesses across multiple sales channels.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Shopify’s billings punched in at $3.18 billion in Q1, and over the last four quarters, its year-on-year growth averaged 32.3%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Shopify’s revenue to rise by 25.9%. While this projection is below its 29.2% annualized growth rate for the past two years, it is eye-popping for a company of its scale and indicates the market is forecasting success for its products and services.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Shopify is extremely efficient at acquiring new customers, and its CAC payback period checked in at 5.3 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation due to its scale. These dynamics give Shopify more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Final Judgment
These are just a few reasons why we’re bullish on Shopify. After the recent drawdown, the stock trades at 10× forward price-to-sales (or $119.50 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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