Shopify Shares Surge on Growth Outlook. Is It Too Late to Buy the Stock?

It's been a roller-coaster ride for Shopify (NYSE: SHOP) shares this year, but since the summer, the stock has been on the ascent. After the e-commerce company delivered a strong third-quarter report Tuesday and offered upbeat guidance, its stock hit a new 52-week high. However, the stock is still far below the all-time peak it hit in 2021.

With Shopify stock trading up more than 40% year to date as of this writing, it's natural to wonder whether it's too late to buy the stock. Against that backdrop, let's take a closer look at Shopify's most recent results and its long-term prospects to see if the stock is still a buy.

Strong growth continues

In Q3, Shopify's revenue grew 26% year over year to $2.16 billion. That was an acceleration from Q2's 21% growth (25% when adjusting for the 2023 sale of its logistics business). It also topped analysts' consensus expectation for revenue of $2.09 billion, as compiled by FactSet.

Gross merchandise volume (GMV) jumped by 24% to $69.72 billion, while B2B commerce GMV soared by 145%. International GMV climbed by more than 30%, with cross-border GMV accounting for about 14% of total GMV. Gross payment volume climbed 31% to $43 billion as more merchants used its Shopify Payments offering. Overall merchant solutions revenue climbed by 26% to $1.55 billion. Subscription revenue jumped 26% to $610 million, helped by more merchants on its platform and higher prices.

Gross margin fell from 52.6% to 51.7%. Gross profits rose 24% to $1.12 billion. Shopify produced $421 million in free cash flow during the quarter. It ended the period with net cash and marketable securities of $4.9 billion and debt of $917 million in the form of a convertible note.

Looking ahead, Shopify forecasted that its fourth-quarter revenue would rise by a percentage in the mid-to-high 20s year over year. It is looking for its gross profit to rise by a similar rate year over year as it did in Q3. It also anticipates that its free cash flow margin will be similar to the 19% it produced in Q3.

Image source: Getty Images.

Is it too late to buy the stock?

While Shopify's stock price has fluctuated widely this year -- particularly around the times of its earnings reports -- its results have actually been pretty consistent.

In each of the first three quarters of the year, its revenues have grown by between 25% to 29%, when factoring out the disposition of its logistics business.

The company is seeing solid growth not just with small e-commerce businesses, but across merchant sizes and segments, both online and offline, and with clients in markets around the globe. This includes B2B and enterprise customers. Meanwhile, it continues to innovate and introduce new tools to help merchants run their businesses, including a low-code workflow automation app and tax code compliance tools.

More merchants also continue to opt to use Shopify's payment services -- Shop Pay facilitated $17 billion in GMV in the third quarter, or 62% of its total GMV. This increased penetration is a huge growth driver and allows the company to participate in the growth and success of its customers.

Shopify now trades at a forward price-to-sales (P/S) ratio of 13.7, based on analysts' 2025 estimates at the time of this writing. That multiple is higher than it has been in recent years, but still well below the ratio the stock traded at back in 2021.

SHOP PS Ratio (Forward 1y) data by YCharts.

Shopify continues to fire on all cylinders, with solid, consistent revenue growth in the mid-20% range. It also has a rock-solid balance sheet with ample cash, and it generates strong free cash flows.

The stock is getting close to fairly valued in my view, so I wouldn't necessarily chase it at these levels. However, I think the stock will continue to be a solid long-term winner, and I'd consider buying shares on any pullbacks.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems and Shopify. The Motley Fool has a disclosure policy.