1 Stock Down 24% to Buy Today and Hold Forever

It's been a busy earnings season, and artificial intelligence (AI) isn't the only thing on the market's mind. Shopify (NYSE: SHOP) reported a blowout quarter, and it reinforced the idea that there is so much opportunity ahead. Shopify stock jumped on the news, and it's up 20% so far this year, but it's still 24% off its all-time high. Let's see why this stock could still add value to your portfolio.

The behind-the-scenes e-commerce powerhouse

Amazon is the undisputed leader of U.S. retail e-commerce, but if you add up all of Shopify's merchants together, they give Amazon a run for its money. In the 2024 fourth quarter, it processed $94.5 billion in gross merchandise volume (GMV), versus $123 billion for Amazon's online stores and third-party sales. It's not anywhere near catching it, but it's growing much faster -- 26% for Shopify's GMV, versus about 7% for Amazon's online sales and 9% for third-party sales.

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Shopify doesn't actually sell any retail merchandise, but it powers the small and increasingly large merchants that use its services and processes a growing amount of volume. Although it's known for its subscription services, or the full and partial packages it offers its clients to get online and selling, it makes much more of its revenue from payment processing. As it onboards new clients for more services, it's increasing revenue streams and developing into a blockbuster e-commerce player.

Not only was business brisk in Q4, it accelerated, with a 31% increase in revenue year over year. Profitability was a standout, and since that had been one of Shopify's weaker points over the past few years, it's inspiring renewed confidence. Operating income was $1.1 billion in 2024, up from a $1.4 billion loss in 2023, and it generated $1.6 billion in free cash flow.

Why investors can be confident about the future

One way Shopify is winning in e-commerce is by taking a page out of the Amazon playbook and trying to be everything to everyone. It has expanded well beyond its original core small business client and targets businesses of all sizes with myriad options that cover the gamut of e-commerce. It's tech-heavy but agile, allowing clients to roll between options and packages, taking one component or many. It's easy to set up and integrate, and it provides services for both digital and physical platforms. Because it was built with digital in mind, it's trying to position itself as the go-to destination for omnichannel retailers, and that's where retail is headed.

It has identified and focused on multiple growth drivers, and there were strong results across the board in Q4. International revenue and offline revenue were each up 33% year over year, and business-to-business GMV was up more than 140%. Shopify merchants serviced 875 million shoppers, and 200 million shoppers used Shop Pay services, which grew its GMV by 50% over the previous year.

Trends are in its favor. According to eMarketer, e-commerce sales were expected to increase to 20.3% of total retail sales in 2024 and reach 23% by 2027. Shopify is well-positioned to capture market share and keep growing.

Shopify made a misstep when it expanded too fast and invested in its own logistics network. Now that it's wound that down and is back to profitability, investors can look at the saga in a positive light and see that management is willing to own up to its mistakes and correct them successfully.

Consider the valuation

The one thing that's been holding me back from giving Shopify an enthusiastic thumbs-up is its valuation. Shopify trades at a forward, one-year price-to-earnings ratio of 67 and a price-to-sales ratio of 18. These are rich numbers, and Shopify isn't the right candidate for the risk-averse investor. But if you have some appetite for risk and a long time horizon, Shopify should reward investors over the long term. With high-valuation stocks, you might want to employ a dollar-cost averaging strategy to get into a position today but benefit from more attractive entry points.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.