Shopify (NYSE:SHOP) has seen its stock price decline by over 17% following its fourth-quarter results, bringing its market cap down to $130 billion. The e-commerce giant has experienced significant volatility in the past two years, initially dropping by more than 75% in 2022 before surging over 100% in 2023. Currently trading 53% below its all-time high, Shopify may present a compelling opportunity for long-term investors.

How Did Shopify Perform in Q4 2023?

In the fourth quarter, Shopify reported revenue of US$2.14 billion and adjusted earnings of US$0.34 per share, both beating Wall Street estimates of US$2.08 billion in revenue and US$0.31 per share in earnings. Despite this, the stock fell over 10% as investors were disappointed with the company’s guidance for 2024. Shopify expects revenue growth to slow to between 25% and 30% in the first quarter of 2024, signaling a deceleration in growth.

Additionally, Shopify reported a free cash flow of US$446 million in Q4, with a margin of 21%. However, it anticipates operating costs to rise in 2024, leading to a free cash flow margin of less than 10%, significantly lower than consensus estimates of 13.6%.

Is Shopify Stock Undervalued?

Shopify has successfully expanded its ecosystem, attracting two million merchants to its platform. The company operates a robust platform for sellers and has introduced services powered by artificial intelligence. Strong customer retention and engagement rates have helped Shopify increase its revenue from US$2.92 billion in 2020 to US$7 billion in 2023.

Despite an uncertain macro environment, Shopify aims to improve its profit margins and generate consistent positive cash flows. In Q4, Shopify reported a net income of US$657 million compared to a loss of US$623 million in the same period last year.

Analysts expect Shopify’s adjusted earnings to grow from US$0.73 per share in 2023 to US$7.6 per share in 2028, representing an annual growth rate of almost 60%. With the stock currently trading at 73 times forward earnings, a price of US$265 in 2028 would imply a 255% increase from the current price.

What is the Target Price for SHOP Stock?

Of the 33 analysts covering Shopify, 12 recommend “buy,” 18 recommend “hold,” and three recommend “sell.” The average target price for SHOP stock is US$81.44, 8.5% higher than the current price.

While the immediate upside for Shopify may seem limited, quality growth stocks like Shopify have the potential to deliver substantial returns over time. Despite its recent volatility, Shopify has returned 2,550% to shareholders since its IPO in 2015.

Despite its less-than-stellar guidance, Shopify appears to be a good buy and is positioned to outperform the broader market in the coming decade.

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