We recently published a list of 10 Best Gig Economy Stocks To Buy. In this article, we are going to take a look at where Shopify Inc. (NYSE:SHOP) stands against other best gig economy stocks.
The Rise of the Gig Economy
The pandemic era has been heralded as one of the most profitable periods for gig economy stocks, as more and more people started picking up remote work opportunities through online platforms looking to connect service providers with clients. But even before then, the gig economy has been a vital part of the market since, at any point in time, there will be a massive cohort of people who simply want to be their own boss – the pandemic just made it easier for these types of people to shine brighter.
Post-pandemic, as people began to realize that it was, in fact, possible to work from home, gig economy companies were able to hold on to their profits. Even after the return to offices, many individuals have decided to stick with remote work opportunities provided to them by well known online platforms. According to Michael Morton, Senior Analyst at MoffettNathanson, a major part of the reason why gig economy stocks have been performing well in the market this year is that investor perceptions about these businesses are changing. Previously, investors were less inclined to go for gig economy companies because they used to focus too much on growth and not enough on profitability. However, Morton believes that companies are changing this approach to make it the opposite now – the focus on profitability is now overruling that on growth.
Secular Tailwinds and Risks for Gig Economy Businesses
Morton believes that well-known gig economy businesses in the ride-hailing and food delivery spaces are promising enterprises that are set to benefit from secular tailwinds. The biggest tailwind for such businesses is their expansion into large, untapped, addressable markets. While there will be a degree of risk attached to these new endeavors as the big gig economy players start to pursue these opportunities aggressively with high levels of investment, there is room to argue that these investments will be for the overall benefit of the businesses that do tap into markets that have gone ignored so far – think Southeast Asia, India, Latin America, and Africa.
Another risk that some people see for gig economy businesses is in the regulatory domain. Morton believes that the services these companies are providing to consumers are important enough to necessitate a cooperative attitude from regulatory bodies across the globe, seeing as they not only offer what are now considered essential services but also provide a means of generating supplemental income for their workers. At the same time, most of your bigger gig economy players with operations in up to 70 countries have also shown the capability of working with a variety of regulatory landscapes.
These factors have been working wonders in terms of alleviating investor concerns surrounding gig economy stocks, a development that is leading to more investors being convinced to buy into these businesses. As a result, the popularity of these stocks is only going up, which is why we’ve compiled a list of some of the best gig economy stocks to buy now.
Our Methodology
We sifted through ETFs and online rankings to compile an initial list of 20 gig economy stocks. We then selected the 10 gig economy stocks with the highest number of hedge funds holding stakes in them, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An enthusiastic customer completing a purchase and receiving an order confirmation via one of the companies online sales channels.
Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 56
Shopify Inc. (NYSE:SHOP) is an e-commerce company that operates a platform through which merchants sell their products through various sales channels. It is based in Canada.
Since Shopify Inc. (NYSE:SHOP) has a unique angle within the e-commerce space, many investors believe that this stock has massive upside potential. Through its platform, merchants are able to set up digital storefronts – a feature that uplifts millions of small businesses and merchants but which is also heavily used by major brands such as Nike and Red Bull.
The reason why so many businesses prefer Shopify Inc. (NYSE:SHOP) over other platforms that allow them to sell their own products, such as Amazon, is that Shopify Inc. (NYSE:SHOP) takes only a small percentage of your sales as a fee. This is in direct contrast with e-commerce giant Amazon, which charges even up to 45% of your sales as a fee. Because of this, Shopify Inc. (NYSE:SHOP) is continuing to attract a lot of smaller businesses and newer merchants, which is why its user base is only continuing to grow.
Finally, analysts are expecting AI to really boost Shopify Inc. (NYSE:SHOP) to greater heights. This company has the resources to attract AI developers to its platform since developers can add more functionality to the platform and, consequently, earn more money when users decide to incorporate their tools. Even today, Shopify Inc. (NYSE:SHOP) has several AI apps and features, such as chatbots and automated content creation, which are making the stock more profitable for investors.
In total, 56 hedge funds were long Shopify Inc. (NYSE:SHOP) in the second quarter, with a total stake value of $2.4 billion.
Rowan Street Capital mentioned Shopify Inc. (NYSE:SHOP) in its second-quarter 2024 investor letter:
Shopify Inc. (NYSE:SHOP) has been an incredibly rewarding investment for those lucky enough to get in early after the company’s initial public offering (IPO) in 2015. The shares have delivered a return of 2,600% or 42% annual. Its revenues have grown at 49% per annum since the end of 2014 from $105 million to estimated $8.6 billion in 2024. The massive e-commerce market is a huge opportunity, as the company’s growth indicates. As you tell from the chart below, revenues are forecasted to grow above 20% for the next 3 years. Keep in mind, Shopify has been around for more than a decade — and it’s still growing at these high rates.
We have owned Shopify for only 2.5 years, establishing our position in the first quarter of 2022 at a cost basis of $60, after the stock collapsed from its highs of $169 in November 2021. In hindsight, our entry may have been a bit premature, as the stock continued to plunge, eventually reaching a low of $27 in October 2022. However, such market movements are inherently unpredictable, and we seized the opportunity to invest in a company we had long admired…” (Click here to read the full text)
Overall, SHOP ranks 5th on our list of 10 Best Gig Economy Stocks To Buy. While SHOP is an exceptional investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHOP and which trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.