Shopify (TSX: SHOP) is one of the best-known Canadian tech stocks. The company is an established name in e-commerce, and its platform helps merchants build and operate their online presence. Despite that appeal, Shopify stock took a hit after reporting its latest quarterly results today.
That might seem strange, especially as the business just delivered 32% revenue growth, but it seems that investors were ultimately looking for more. This raises an important question: Is it still a good time to buy Shopify right now, or should investors turn away?
To answer that, let’s start with a look at how the company fared in the most recent quarter.
A closer look at Shopify’s quarter
Shopify announced results for the third fiscal quarter this morning. During that quarter, the company reported <a href="https://www.fool.ca/investing/what-is-revenue/” rel=”nofollow noopener” target=”_blank”>revenue of US$3.7 billion. Gross merchandise volume reached US$119.1 billion, representing a 29% uptick over the prior year. Gross merchandise volume measures the value of orders that are processed through its merchants.
Despite the impressive gains, they still fell short of expectations. Some pundits were calling for revenue of US$3.8 billion. And gross merchandise volume growth slowed to 29% from 32% in the prior quarter.
In other words, while the results were impressive, they still fell short of what the market was expecting. The miss was small, but still a miss. And the business continued expanding, but the results gave investors less reason to raise their expectations.
Another area to note is Shopify’s operating income. In today’s announcement, the company noted that operating income increased by 66% to US$568 million. Free cash flow also saw a large increase of US$309 million to US$816 million compared with the same period last year.
For prospective shareholders, that stronger cash generation adds to the appeal. It means that Shopify is generating more cash while its revenue base continues to expand.
That’s something for investors to hold onto apart from just sales growth.
Turning to the next quarter, management expects Q4 revenue growth to come in the low 30s percentage range. In other words, management expects strong growth to continue.
Shopify stock still needs a valuation check
The hardest part about buying Shopify stock is deciding on an entry price.
Looking back at the past decade, Shopify is one of the best-performing stocks on the market. In fact, the stock has grown nearly 40 times in the past decade.
To put it another way, a $1,000 investment in Shopify back in the fall of 2016 would be worth nearly $40,000 before the latest selloff.
