Stocks to buy

3 Reasons To Buy SHOP Stock Even After Its Post-Earnings Dip

Shopify (NYSE:SHOP) stock has solid financial and the company continues to dominate the market and expand its merchant base. These are just the base factors that have pushed SHOP stock higher.

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Of course, they’re not alone. Tech stocks are gaining popularity in the post-covid world.

Despite the pandemic, tech companies have managed to attract new users and report strong financials. Although priced on the higher side, Shopify stock has the potential to generate impressive returns in the future.

I am bullish on SHOP stock and believe it will continue to go higher. The stock climbed 29% in the first six months of 2021 and this rally has generated strong returns for investors.

The pandemic led to an e-commerce revolution and helped many merchants join Shopify.

SHOP stock is trading at around $1,525 currently. The stock hit an all-time high of $1,640 about a week back. I believe there are three strong reasons to invest in SHOP stock. Let’s take a look at them. 

1. Robust Financials Underpin SHOP Stock

Shopify reported record financials for the second quarter. The revenue was $1,119 million, an increase of 57% year over year. The Subscription Solutions revenue increased by 70% year over year and hit $334 million, which is a sign that more merchants have been joining the platform.

The Merchant Solutions revenue hit $785.2 million, a 52% increase. The gross profit increased by 66% and hit $620 million in the quarter as compared to $375 million for the same quarter the previous year.

Further, the net income for the quarter was $879 million as compared to the net income of $36 million for the second quarter previous year. Shopify’s operating income for the quarter was $139.4 million and the Monthly Recurring Revenue was $95.1 million.

The company has a cash balance of $7.76 billion as compared to $6.39 billion at the end of December 2020. Shopify has quickly gone from reporting an operating loss in 2019 to breaking out in 2020 and reporting a profit in 2021. The company has a strong balance sheet with a solid cash position. 

The robust financials of the company will boost the stock price and attract investors. When it comes to fundamentals, there is nothing to worry about. Shopify has a strong position in the market and is financially stable. 

2. New Features and Updates

Shopify has certainly closed the first half of the year with strong numbers, but it is not stopping there. The company has recently announced an update to its developer platform which will add several capabilities for the merchants and enhance the shopping experience.

The company has more flexible and easily customizable storefronts, faster and customizable checkout, and offers attractive incentives to developers. It has also added new features to the Shop, a mobile shopping assistant.

At the end of the second quarter, Shop had more than 118 million registered users out of which 23 million are Monthly Active Users. The strong numbers prove the capability of the company to cater to the needs of merchants.

3. Wall Street Loves SHOP stock

Wall Street is bullish on SHOP stock with analysts recommending a buy. Jefferies analyst Samad Samana has a price target of $1,800 with a buy rating on the stock. The analyst stated that the Q2 results have nicely beat consensus and the company is heavily investing in growth, which will take the stock higher. 

Further, Rosenblatt analyst Mark Zgutowicz has a price target of $2,000 with a buy rating on the belief that the expansion of Shop Pay to the non-Shopify platforms and merchant sites will increase revenue opportunities.

Jim Kelleher, an Argus analyst has a price target of $1,850 on the stock with a Buy rating. Wolfe Research analyst Deepak Mathivanan has a price target of $1,980 with an Outperform rating on SHOP stock. 

The Bottom Line

It does not look like Shopify is anywhere close to slowing down. The management is taking all the necessary steps to meet the expectations with regard to its outstanding performance in the year. It expects a surge in profit during the year and is working aggressively on growth. 

The stock may be expensive right now but it is only soaring higher. This is a good entry point for investors. Hold the stock for the long term to make massive gains. 

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.