Potent Growth Stocks Worth Monitoring in December for Shrewd Investors
Winter's nearly here, and amidst your hot cocoa and holiday bashes, there's another festive endeavor likely on your mind. I'm talking about shopping, of course.
As the year draws to a close, businesses are pulling out all the stops to lure shoppers into their stores and take advantage of discounts. While there are numerous methods to invest in holiday shopping trends, I believe Shopify (SHOP -0.34%) is an outstanding e-commerce opportunity you'll want to keep an eye on this December.
Let's delve into why Shopify is making waves during the holiday season and why its success might continue.
December could be Shopify's month to shine
The final weeks of the year are rich with holiday-themed shopping days. Here's a quick rundown:
- Black Friday (the day after Thanksgiving)
- Small Business Saturday (the Saturday after Thanksgiving)
- Cyber Monday (the Monday after Thanksgiving)
The whole month of December also features sales, both online and offline, also including post-Christmas sales for exchanged gifts.
Shopify's management reports that the company kicked off the holiday season with record-breaking success. Merchants on Shopify generated $11.5 billion in gross merchandise volume between Black Friday and Cyber Monday, representing a 24% increase year over year and a new record for the company.
While this shows Shopify's growing impact on the commerce landscape, I see something more intriguing beneath the surface.
Over the past few years, consumers have faced high inflation and rising interest rates. However, recent signs of inflation cooling down and the Federal Reserve's interest rate tapering policy suggest that consumer buying power is gradually improving.
The sales volume generated by Shopify during Black Friday and Cyber Monday could be a promising harbinger of what's to come throughout December, as last-minute shoppers make their final purchases.
But don't just take my word for it. Emarketer is estimating that holiday retail sales will rise by 5% in 2024, totaling $1.4 trillion. Given Shopify's dual presence in both online and offline retail through its point-of-sale (POS) system integrations, the company is in a prime position to capitalize on holiday shopping, whether through e-commerce or brick-and-mortar stores.
Analyzing Shopify's valuation
Valuing an investment in Shopify has always been challenging for me. While the company is now consistently generating net income and free cash flow, these values haven't yet reached their full potential. Therefore, using profitability-based metrics seems futile to me.
The graph above compares Shopify to a group of companies with strong e-commerce or retail footprints on a price-to-sales (P/S) basis. Even by this measure, Shopify is the most expensive stock in its group and the gap is substantial. Additionally, the graph illustrates that Shopify's stock has seen significant valuation expansion in recent months.
Is it a good time to buy Shopify stock?
Although I view Shopify as an expensive stock, I want to provide more perspective to help determine if it's a worthwhile investment.
The graph above shows Shopify's stock price changes between Thanksgiving 2023 and January 31, 2024. As you can see, Shopify's shares soared following Thanksgiving and sustained their momentum through the end of the year. However, shortly after the holidays, the stock plummeted.
To me, this type of price action suggests a momentum trade. As a long-term investor, I don't want to be caught up in a holiday-driven bullish narrative that could attract day traders and result in exaggerated swings in Shopify's stock price.
Although I view Shopify as an appealing stock to track as the holiday season approaches, I believe there are better entrance points for the stock.
In light of Shopify's impressive performance during Black Friday and Cyber Monday, with a 24% year-over-year increase in gross merchandise volume, there might be a significant increase in sales throughout December as well. This is particularly noteworthy considering the gradual improvement in consumer buying power due to cooling inflation and the Federal Reserve's interest rate tapering policy.
Given Shopify's strong presence in both online and offline retail through its point-of-sale (POS) system integrations, the company is well-positioned to capitalize on the anticipated 5% increase in holiday retail sales in 2024, projected by Emarketer. Therefore, investing in Shopify could be a strategy worth considering for those looking to capitalize on the holiday shopping season.
