Shopify (SHOP – Free Report) shares have dropped 15.4% since hitting a 52-week high on Feb. 18. The pullback can be attributed to increasing macroeconomic challenges driven by U.S. President Donald Trump’s decision to levy on top trading partners, including China, Mexico and Canada, which has increased the chances of a trade war. However, indications that reciprocal tariffs, set to be announced on April 2, would be more narrowly targeted helped SHOP shares surge 4.87% to close at $109.28 on Monday.
Does the pullback offer a buying opportunity? Shopify is significantly overvalued, as suggested by a Value Score of F. In terms of the 12-month Price/Sales, SHOP is currently trading at 12.46X, compared with the broader sector’s 5.88X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Stiff competition has been a headwind. Shopify plans to shift to a three-month paid trial in certain markets compared with its previous one-month paid trial practice to boost merchant durability and retention. This negatively impacted fourth-quarter MRR growth and is expected to hurt the first-quarter 2025 and second-quarter 2025 MRR’s.
Shopify plans to invest more in core platforms, international and B2B enterprise and offline, which is expected to hurt free cash flow margins in the near term.
So, how should investors approach SHOP shares? Let’s find out.
Expanding Merchant Base Bodes Well for SHOP’s Prospects
Shopify has been benefiting from robust growth in its merchant base, driven by its merchant-friendly tools, including Shop Pay, Shopify Pay Instalments, Sign in with Shop and the Shop App. These innovative offerings are enabling Shopify to attract new merchants, even amid challenging economic conditions. This has helped SHOP shares outperform the Zacks Computer & Technology and the Zacks Internet Services industry year to date. While SHOP shares appreciated 39.1%, the sector and industry increased 9.8% and 10.6%, respectively.
SHOP Stock’s Performance
Image Source: Zacks Investment Research
Shopify’s latest updates have introduced more than 150 new features to its platform, enhancing merchants’ businesses and making operations smoother and more efficient. These updates are empowering merchants on the SHOP platform with innovative tools to streamline operations and grow their businesses.
Companies and brands like Reebok, Champion, Westwing and BarkBox are now available on Shopify. The company is expanding its footprint across verticals, including apparel and accessories, as well as health and beauty. SHOP is expanding in Europe with the addition of brands like Karl Lagerfeld and FC Barcelona.
Shop Pay is benefiting from strong adoption. Shop Pay app is benefiting from a more personalized and fresh shopping feed, new curated shopping events and category browsing and the launch of cart syncing.
Shopify plans to increase its AI capabilities, which will help not only new merchants launch but also help larger merchants scale faster and drive productivity. SHOP plans to continue expanding its reach across various merchant sizes, including entrepreneurs and enterprises and strengthen its footprint across Europe and countries like Japan.
A Rich Partner Base Aids SHOP’s Prospects
SHOP continues to benefit through its partnerships with prominent names like TikTok, Instagram, Target, PayPal (PYPL – Free Report) , Roblox, Alphabet, Manhattan Associates, Oracle, COACH and Adyen.
Through its expanded partnership with PayPal, SHOP is diversifying its Payments product offerings. With Alphabet’s YouTube, SHOP has provided its merchants with a powerful sales channel, leveraging YouTube creators to tap into its massive global audience.
In its commerce integration partnership with Roblox, Shopify has opened newer avenues for merchants to reach a younger and more engaged audience.
SHOP’s 2025 Earnings Estimates Revisions are Steady
The Zacks Consensus Estimate for SHOP’s 2025 earnings is currently pegged at $1.49 per share, unchanged over the past 30 days and indicating year-over-year growth of 14.62%.
The consensus mark for SHOP’s 2025 revenues is currently pegged at $10.86 billion, indicating year-over-year growth of 22.3%.
SHOP beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 22.08%.
Shopify Inc. Price and Consensus
Shopify Inc. price-consensus-chart | Shopify Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Conclusion
SHOP is benefiting from strong growth in its merchant base and expanding footprint. Its focus on improving its client base is a key catalyst. Hence, investors who already own the stock may expect the company’s growth prospects to be rewarding over the long term.
However, challenging macroeconomic conditions and a cautious spending environment are headwinds along with a stretched valuation.
Shopify currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable time to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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