If I had a spare £5k to invest, I’d split it between out-of-favour stocks where the potential long-term returns could be much higher from today’s prices.

Growth at a more reasonable price

One sector that has been hammered this year is growth stocks, particularly in the US. The valuations of some of these stocks reached ridiculous levels last year. Now though, many have fallen substantially, opening up some interesting opportunities.

Shopify (NYSE:SHOP) is one such company. The share price is down an incredible 81% in 12 months. As a holder, I’m personally feeling the pain, with my Shopify shares down around 60% from when I invested.

Despite the drop, I have no intention of selling my shares because I’m still encouraged by the progress of the company. Shopify sells tools to enable merchants to run their businesses online and offline. The platform has massive scale, with an estimated 3.6m jobs created globally by Shopify merchants. This scale has recently enabled it to sign partnerships with the likes of Facebook, YouTube, and TikTok.

A strange disconnect

Shopify has grown its gross merchandise value and revenues threefold since the start of the pandemic. Yet the share price since then is down around 40%. I think that disconnect between the strength of the company and the weakness in the share price offers me a great opportunity.

There’s an investing adage that says we should only water our flowers, not our weeds. Down 60%, Shopify certainly looks like a giant weed in my portfolio right now. So of course, there’s a risk here that I’m throwing good money after bad, especially with the risk of a global recession looming.

However, I’m inclined to see this as throwing more money into a good company and will be adding to my position this year.

Solid income generator

I’d also be looking for solid income stocks that are down. One that catches my eye is National Grid (LSE:NG), with the shares falling 17% so far this year. The dividend yield is forecast at 5.7%, which I think looks attractive.

This utility giant transmits and distributes electricity and gas, connecting millions of people to the energy needed to live. It’s essential and basically has a monopoly on what it does.

Yet one obvious risk is the potential for energy blackouts this winter. Management has even called this out, saying: “In the context of the terrible things that are going on in Ukraine and the consequences of that [it is] right that we set out what some of the potential risks could be.” These blackout times in the UK would be between 4pm and 7pm, by the way.

Obviously, this wouldn’t be great for a company that connects households to the power grid. Nevertheless, I’d expect blackouts to be temporary and not affect National Grid’s long-term dominance. So I’ll buy this stock if winter passes without blackouts.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Shopify shares have crashed

The fall in Shopify shares has been dramatic. However, the story here is a familiar one. The share price soared as people spent more time online during the pandemic, then started to fall from its dizzying heights. Although the one-year price chart shows a big dip, if I had bought Shopify shares five years ago, I would have more than doubled my money by now.

Has the decline been overdone, though? After all, the shares now trade below where they stood even at the start of the pandemic. But the business is in stronger shape than it was then. Between 2019 and last year, for example, revenues grew 45%.

How to value Shopify

The company has moved from making losses to turning a profit. Last year, its net income was $2.9bn, although that partly reflected some exceptional items I do not expect to be repeated on the same scale.

Looking at the current profit and loss account is only one way to value a company.

Another approach some investors use is to consider the free cash flows a company is likely to generate and then discount them for the fact that money loses value over time. This is known as the discounted cash flow model of valuation.

Looking ahead, I expect digital commerce to grow in importance. Shopify has been adding merchants In recent years and it is what is known as a sticky platform. In other words, once users have spent the time and effort getting to know it and building their digital shopfront, the switching costs may put them off jumping ship to a competitor. That gives Shopify pricing power.

The gross merchandise volume on the platform in the second quarter was $47bn, representing a compound annual growth rate over the past three years of 50%. The company basically takes a cut of that, so its own revenue is much smaller but still growing.

Shopify has made an operating profit in the past couple of years and I think it has the makings of a scalable, successful digital platform with long-term pricing power. On that basis, the current valuation of $39bn does not look cheap to me but it also does not appear overly expensive given the potential of the business.

Should I buy the shares?

However, potential is one thing – delivering on it can be another. So although I am upbeat about the prospects for Shopify, I would like to see more sustained evidence of its ability to generate a profit.

The company has been making good progress on this front but I would like to see more sustained evidence of profitability. That may mean the shares go up in price again before I decide to buy, but that is a risk I am willing to take.

I like the business model so far but will not be investing in Shopify shares until I feel more confident about the scale of its long-tern profitability prospects.

While the fears surrounding a 2023 recession aren’t unfounded, it’s far from guaranteed. But even if the worst comes to pass, there is a refuge in knowing that the stock market has a perfect track record of recovery. And as all investors know, buying high-quality businesses at dirt-cheap valuations is a recipe for enormous long-term wealth generation.

With that in mind, I believe these two e-commerce businesses could be some of the best shares to buy now before the eventual rally.

Is Shopify one of the best shares to buy now?

Shopify (NYSE:SHOP) reached a pretty lofty valuation last year. And even after collapsing by nearly 80% over the previous 12 months, the business still trades at a premium.

As a quick reminder, the group operates an online platform that enables individuals and businesses to establish an online storefront. However, over the years, its product offerings have expanded. And it now includes a sales analytics platform, payment processing solutions, as well as issuing small business loans. Moreover, the company recently completed an acquisition to provide customers access to an enormous logistics network.

Today, most of the revenue stream comes from processing payments for websites built on its platform. And therefore the drop in consumer spending obviously poses a serious threat to the top-line income.

Pairing this with the stiff competition from companies like Amazon only adds more pressure. But with just under $7bn in cash on its balance sheet, I believe this business has more than enough liquidity to survive a potential recession.

The share price will undoubtedly be volatile over the next year. But once things eventually begin to normalise, I have a hunch the company can resume its impressive growth trajectory seen since I initially invested in 2017. That’s why I believe it may be one of the best shares to buy now for my portfolio.

Another fallen-from-grace e-commerce stock

Much like Shopify, ETSY (NASDAQ:ETSY) hasn’t had a great run lately. In fact, the growth stock is down around 44% over the past year.

The e-commerce company operates an online platform that enables individuals to sell products. But what differentiates it from other similar platforms like eBay is the community. Items found on ETSY are almost exclusively unique hand-crafted artisan products. As such, it’s rare to find the same stuff on other platforms or in brick and mortar stores.

The group generates revenue by charging fees for listing and selling products. And since it’s largely home to discretionary items, the drop in consumer spending means demand is currently being impacted. In fact, the slowing growth is one of the main reasons why the stock dropped so sharply this year.

Operating in a recession is obviously going to be challenging for ETSY. But with over $1bn of cash at its disposal, I believe the business can equally survive the economic turmoil. And with its niche firmly secured within the e-commerce space, these could be the best shares to buy more of in my portfolio today. At least that’s what I think.

It’s human nature to feel like you’re suffering more than others are. But that’s simply because you’re experiencing your feelings all the time, and not constantly seeing or hearing the impact on everyone else.

However, it’s important to recognise that we’re all in this together. And here at The Motley Fool, we pride ourselves on our transparency (it’s why we disclose positions in any company mentioned, even those we just mention in passing!). So today I thought some of our readers may benefit from hearing my own tale.

A bit of background

It’s first worth mentioning that I follow the Foolish investing line of only buying shares with money that I’m unlikely to need in the next three to five years. That’s a core component of long-term investing. In fact, our CEO Tom Gardner said it best recently:

And at the beginning of 2022, my wife and I decided that it was time to ‘upsize’, and sell our flat in order to buy a house. (N.B. investing — Foolishly — was the only reason we were able to buy our home in the first place!)

So I worked out which shares I was happy selling to bridge the gap — which largely comprised stocks I bought close to 10 years ago, had risen substantially in value, and crucially were no longer marked as Buys in a TMF UK service — and those I wanted to keep in my Stocks and Shares ISA.

A bumpy landing

I concede that in one respect I was lucky, since I happened to sell some of my holdings at high levels before the invasion of Ukraine occurred, with markets plummeting thereafter.

But, of course, the vast majority of the shares I kept fell quite drastically. As did those held by the vast majority of investors.

It also didn’t help that I have bought into a variety of US tech stocks over the years. For example, in September, I bought shares in Atlassian. My investment in the software firm is now down almost 50%.

My fourth largest holding (by book cost) is in e-commerce company Shopify, now down 70% over the last 12 months, and showing a -24% fall in my portfolio.

All in all, the total value of my Stocks and Shares ISA is in the red by a percentage of -22.74 as I write.

The grass is always greener…

While that (paper) loss isn’t ideal, of course, I’m not worried. In fact, I’d go as far as to say that I’m optimistic!

That’s because I’m not investing to ‘get rich quick’. No, I buy shares and plan to hold them for the long term. With no future Big Life Event planned in the next three to five years for me and my wife, I can afford to see today’s market volatility as a positive.

There are many, many quality companies out there — both listed in the US and UK — that are currently beaten-down and undervalued. I believe that my Stocks and Shares ISA will creep out of the red if I follow three principles:

1. maintaining my belief in the underlying businesses of my holdings;
2. topping up positions in my favourite shares; and
3. identifying new buying opportunities

For instance, I’m contemplating adding to my Greencoat UK Wind shares, up 13% in my portfolio right now. I’m also interested in some of the Footsie’s income stocks that have proven themselves to be consistent dividend-payers through thick and thin. And I’m definitely, definitely not selling anything marked as a Buy or Hold in a Motley Fool UK service!

In summary, if anyone reading this can be reassured by just one thing, it’s hopefully this: that we at The Motley Fool are still investing alongside you. Indeed, I’ve recently heard from colleagues that they’re more excited to buy shares than they have been in many years (and these Fools love buying stocks!)

Happy hunting!

This is a stock I own, and after this week’s share price fall, I’m now sitting on a loss. This is quite frustrating, given that, at one point, I was up over 50% on my purchase price. So what’s the best move now with Shopify stock? Should I buy more, hold, or sell? Let’s take a look.

Shopify stock: what’s the best move now?

The first thing I want to know here is whether the growth story is still intact. And looking at the group’s Q4 results, I’m convinced it is.

For Q4, total revenue was $1.38bn, up 41% year-on-year and above the consensus forecast of $1.34bn. Within this, Subscription Solutions revenue grew 26% year-on-year while Merchant Solutions revenue was up 47% on a year ago.

Meanwhile, for 2021, total revenue for the full year was $4.6bn, an increase of 57% year-on-year, while gross merchandise value (GMV) was $175.4bn, an increase of 47% over 2020.

Looking ahead, Shopify said it doesn’t expect the same level of growth in 2022, due to the absence of lockdowns and government stimulus. However, it still expects ‘rapid’ growth that outpaces the general e-commerce market.

Overall, I’m comfortable with the growth here. I wouldn’t expect 2022 gains to be as high as they were during the pandemic when consumer behaviours changed dramatically.

Earnings growth

The next thing I want to know is whether the company is actually making any money. With interest rates rising, I think it’s likely to be a challenging year for companies losing a ton of money.

Shopify’s earnings for 2021 were quite encouraging to my mind. For the year, operating income was $268.6m (6% of revenue) versus $90.2m (3% of revenue) in 2020. Meanwhile, adjusted net income amounted to $6.41 per share versus $3.98 a year earlier.

This profits growth is encouraging. However, it’s worth noting that in Q4, adjusted net income per share ($1.36) was down on the figure posted for Q4 2020 ($1.58).

Valuation

Of course, I also want to look at the valuation. All of a sudden, valuations have become very important.

Shopify’s valuation is still quite high, even after the share price pullback. For 2022, analysts expect the company to post earnings per share of $6.52. That means the forward-looking P/E ratio is about 115.

This valuation does add considerable risk. If 2022 growth is disappointing, I’d expect the stock to be highly volatile.

Other risks to consider

And it’s worth pointing out that the valuation is not the only risk here. A slowdown in online shopping is another risk to consider. There’s no guarantee the e-commerce industry will do well after the pandemic.

Competition from rivals is also worth thinking about. Shopify rivals include the likes of Amazon, eBay, and Etsy. These companies could steal market share.

Shopify stock: my view now

Putting all this together, I see Shopify as a ‘speculative buy’ for me at the moment. It’s not a stock I’d load up on due to the fact that the valuation is so high. However, I’d be comfortable buying a small position at today’s share price as I think this company is likely to get bigger in the years ahead.

Solid earnings vs Shopify share price

Despite what the plummeting Shopify share price would suggest, earnings were actually pretty impressive, in my opinion. Total revenue came in 57% higher than a year ago to a record $4.6bn. And thanks to drastic improvements in margins, net income exploded from $319.5m to $2.9bn. That’s an 800% jump!

What was behind this growth? Looking at the operational highlights, this business has been quite busy.

• Its Buy-Now-Pay-Later payment solution was rolled out to all its US merchants.
• The company has formed new payment partnerships with Alphabet (Google), Meta Platforms (Facebook), Microsoft, Oracle, Spotify and TikTok.
• Its Point-Of-Sale devices were rolled out across the UK, Australia, Germany, New Zealand, and the Netherlands.
• Shopify’s shipping & logistics network has expanded to the UK making it available to all merchants using the platform in the region.

Needless to say, this is all quite encouraging. But with seemingly stellar operational performance combined with record financial achievements that beat analyst expectations, it begs a simple question. Why did the Shopify share price drop by double digits?

Investigating investor concerns

Like many growth stocks today, it seems investors are less interested in current achievements and more concerned about the future. In the case of Shopify, management’s guidance for 2022 is what appears to have sent the share price crashing.

The group expects revenue growth to be lower in the first quarter of 2022. This is due to a change in contract terms with platform app & theme developers, as well as weakening e-commerce tailwinds from the pandemic.

The change in contract terms ultimately doesn’t matter, in my opinion. It tweaks the accounting practises of the business, but overall income isn’t harmed. As for the slowdown in e-commerce adoption, this is hardly a surprise, given the pandemic created an exceptional environment. But it’s worth noting that the company expects its 2022 fourth-quarter results to once again break records. So is this a great time to buy?

A buying opportunity?

Even after Wednesday’s tumble, Shopify’s share price still trades at a lofty valuation with a price-to-earnings ratio of 33. This opens the door to a lot of volatility. And if first-quarter revenue comes in lower than investors are expecting, I wouldn’t be surprised to see the stock take another tumble.

However, in my opinion, the concerns surrounding this business are overly short-term focused. And as a long-term investor, this volatility looks like an opportunity. That’s why I’m tempted to snatch up some more shares for my portfolio today.

Recently, however, there have been signs of a comeback. Since their May lows, stocks such as Twilio, DraftKings, and Roku have all bounced around 20%.

This could be a ‘dead-cat-bounce’, of course. In this inflationary environment, there could be further falls to come for high-growth stocks. Nevertheless, I think it’s worth having a nibble at some of these kinds of stocks right now (with a long-term view). With that in mind, here’s a look at two Cathie Wood-owned, high-growth stocks I’d buy for my own portfolio today.

A top Cathie Wood growth stock

One Cathie Wood growth stock I continue to like from a long-term investment point of view is Shopify (NYSE: SHOP). It’s a Canadian technology company that offers an e-commerce platform. Through this platform, retailers can launch an online store effortlessly.

Shopify has grown at an incredible pace in recent years and the company’s first-quarter 2021 results, posted on 28 April, showed more impressive growth. For the period, total revenue came in at $988.6m, up 110% year-on-year, while gross merchandise volume was $37.3bn, an increase of $19.9bn, or 114%. Operating income for the quarter was $118.9m, or 12% of revenue, versus a loss of $73.2m in Q1 2020.

Looking ahead, I expect Shopify to keep growing at an impressive pace, driven by the growth of the e-commerce industry. This year, Wall Street analysts have pencilled in top-line growth of around 50%.

It’s worth noting that Shopify is an expensive stock. Currently, its price-to-earnings (P/E) ratio is over 300. This adds risk to the investment case.

However, we have seen in recent years that not buying a stock because it has a high P/E ratio can backfire. Amazon has consistently had a high P/E over the last five years and in this time, its share price has risen about 350%. So, I’m willing to have a small nibble at Shopify stock at current levels.

Analysts like this stock

A second Cathie Wood-owned growth stock I’d buy right now is Pinterest (NASDAQ: PINS). It’s a social media company that offers a ‘visual discovery’ engine.

This is another company that is generating very impressive growth. Its first-quarter 2021 results, for example, showed revenue growth of 78% year-on-year. Meanwhile, global monthly active users (MAUs) rose 30% to 478m. Looking ahead, Pinterest said it expects revenue growth of around 105% for the second quarter of 2021.

Pinterest is now ramping up the monetisation of its platform. In the first quarter, it achieved average revenue per user (ARPU) of $1.04 globally. There appears to be plenty of room for growth here, however. Rival Facebook currently has an ARPU of around $10.

Pinterest stock is also quite expensive. Currently, PINS sports a forward-looking P/E ratio of about 70. If growth stalls, the stock could take a hit.

I think the long-term growth story here is attractive, however. It’s worth noting that the average analyst price target is $85 – about 33% above the current share price.

Today, I’m going to highlight two growth stocks that are currently held across Baillie Gifford funds. I think these stocks have considerable long-term growth potential and I’d be happy to buy both for my own portfolio today.

A Baillie Gifford ‘gig economy’ stock

One stock I’m very bullish on from a long-term investment point of view is Upwork (NASDAQ: UPWK). It operates the largest freelance employment platform in the world. Baillie Gifford is a top five shareholder here, owning about 3.6% of the company.

There are a few reasons I like this stock. The first is that I believe Upwork offers a brilliant service. I’ve personally used its platform for many years (both as an employee and an employer) and found it to be fantastic.

The second is that the company is growing rapidly. Over the last five years, revenue has climbed from $164m to $374m.

The third is that the freelance market is forecast to get much bigger in the years ahead. In 2020, the ‘gig economy’ was worth around $300bn. However, by 2023, it’s expected to be worth over $450m. This should benefit Upwork.

Finally, Upwork should benefit from a stronger global economy. As economic conditions improve, businesses are likely to hire more freelancers.

There are risks to consider here, of course. One is the valuation. Currently, the stock sports a market-cap of $6bn. This means the forward-looking price-to-sales ratio is 13. That’s quite high. If future results are disappointing, the stock could fall. Another risk is competition from rivals such as Fiverr. It could steal market share.

However, I’m comfortable with these risks. Overall, I see a lot of investment appeal here.

An online shopping powerhouse

Another Baillie Gifford stock I think has a lot of long-term growth potential is Shopify (NYSE: SHOP). It operates an e-commerce platform that makes it extremely easy to launch an online store. Currently, it has over 1m merchants on its platform. Baillie Gifford is the second-largest shareholder here, owning about 5.1% of the stock. It’s currently the largest holding in its American fund. 

The main reason I’m bullish on this stock is that the e-commerce market is expected to grow significantly over the next decade. Last year, global online retail sales amounted to around $4trn. However, by 2027, it’s expected to hit $10trn. This industry growth should provide huge tailwinds for Shopify. This year, Wall Street analysts expect the company to generate revenue growth of around 40%.

While I’m bullish here, this isn’t a stock I’d load up on. That’s because it currently sports a price-to-sales ratio of about 37. That valuation is very high, meaning there’s considerable valuation risk here. If growth slows, this stock could take a hit.

I’d be happy to buy a small position for my diversified portfolio though. As always, it’s about balancing risk versus reward.

Multiple revenue streams

The company now has a market value of around $150bn. In 2020, Shopify enjoyed full-year Gross Merchandise Volume revenue growth of 86% year-on-year. Its subscription revenue was up 53% year-on-year thanks to new merchants signing up. A combination of lockdowns, employment uncertainty and government money spurred many people to to start their own business or side hustle. This is good news for Shopify, but whether the trend will continue long term remains to be seen.

The company has also launched enhanced services such as Shopify Point of Sale (POS), which allows merchants to accept payments anywhere. POS includes inventory management, sales analytics and customer friendly purchase options. It also brings in money from fulfilment and payment services.

Risks to consider

Of course, there are risks too. A rise in inflation could affect e-commerce both from a consumer shopping viewpoint and if its business customers’ running costs outweigh their profits. This could be a problem if its merchants can’t afford to continue (or if its own costs escalate). It already offers Shopify Capital to help businesses stay afloat. This is its merchant cash advance and lending arm. That said, whether economies are booming or tanking, there will always be a new group of people looking to start their own business. Shopify makes it easy and affordable, which gives it staying power.

It has heavyweight competition in eBay and Amazon. But while they allow merchants to sell their wares only under the eBay or Amazon banner, Shopify gives full brand ownership to each merchant. 

Also, as with many US tech stocks, I’m concerned the share price is expensive. The price-to-book value is 23, whereas Amazon’s is 16. Shopify doesn’t pay a dividend to give long-term reassurance during dips either. The Shopify share price is down 18% from its February all-time-high. That’s a rapid decline. But many US stocks in the tech space are enduring a correction, and how long this will continue is unknown.

Should I buy Shopify shares?

I think Shopify is a fantastic product and a very customer-focused platform. It’s sleek, user-friendly and technologically advanced. For instance, its Shop Pay application allows merchants to accept payments directly from Instagram and Facebook. This seamlessly integrates the user’s experience with the brand. Features like this impress me.

I’d be happy to own shares in Shopify because I think it’s a powerful company with an even stronger future. But its high price (even after the share price decline) means that while I’m tempted to buy Shopify shares as a long-term investment, I’ll be waiting to see if it’s got further to fall. I do like its long-term outlook though, with merchant growth and subscription revenue increasing. I just need the right moment to buy.

Here, I’m going to highlight two Wood-owned stocks I’d buy for my own portfolio today. Both have done well over the last year. However, I also believe they’ve a lot of growth ahead.

A top Cathie Wood stock

One Wood stock I like a lot is Teladoc Health (NYSE: TDOC). The leading provider of virtual healthcare services is currently the fourth largest position in the ARK Innovation ETF.

The reason I’m bullish here is I expect the virtual healthcare industry to grow substantially in the years ahead. Ultimately, telemedicine is a win for both patients and healthcare companies. For patients, it’s more convenient. Meanwhile, for healthcare professionals, it’s far more time-effective. According to Mordor Intelligence, the global virtual healthcare market will roughly triple between now and 2026.

TDOC posted a strong set of fourth-quarter and full-year 2020 results last week. For Q4, revenue was up 145% year-on-year to $383m with total visits up 139% to 3m. For the full year, revenue was up 98% year-on-year to $1,094m with total visits up 156% to 10.6m. Adjusted EBITDA for the full year was $126.8m compared to $31.8m for 2019.

There are some risks to be aware of here. One is the valuation. Currently, TDOC has a market-cap of $33bn which equates to a forward-looking price-to-sales ratio of about 17. That’s a high valuation. If future results are disappointing, the shares could fall. The company is also facing competition from the likes of CVS Health.

Overall, however, I think the long-term story here is very attractive. I see the recent share price weakness as a buying opportunity.

An e-commerce powerhouse

Another Wood stock I’m excited about is e-commerce platform Shopify (NYSE: SHOP). The business makes it easy for merchants to build digital storefronts and manage their online operations. Shopify is currently a top 10 holding in both the ARK Innovation ETF and the ARK Fintech Innovation ETF.

The reason I like SHOP is that I expect the e-commerce industry to get much much bigger in the years ahead. By 2027, the global market is set to be worth around $10trn, up from around $4trn in 2020, driven by escalating mobile usage. This market growth should benefit Shopify.

Recent Q4 and full-year results here were impressive. Revenue for Q4 was up 94% to $978m while full-year revenue was up 86% to $2.3bn. The company did warn, however, that sales growth could moderate in 2021 as some consumer spending moves back to retail stores.

Like TDOC, Shopify is an expensive stock. Currently, it has a market-cap of $157bn and sports a price-to-sales ratio of 38. So, there’s certainly some valuation risk here. Another risk to consider is competition in the e-commerce space. Recently, Amazon acquired Selz, a company that also helps businesses launch their own online stores. This suggests Amazon is planning to compete more directly with SHOP.

Given the high valuation, this isn’t a growth stock I’d load up on. However, after the recent share price pullback, I’d be happy to buy a small position for my portfolio.