The share price of e-commerce and merchant solutions company Shopify (NYSE:SHOP) plummeted on Wednesday after management released its full-year results for 2021. The US stock dropped by over 16%, but what was in this earnings report that has investors spooked? And is this actually a buying opportunity for my portfolio? Let’s explore.

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.

Zaven Boyrazian owns Shopify. The Motley Fool UK has recommended Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Many UK shares have taken a beating so far this year, especially growth stocks. But while the world panics about inflation, interest rates or geopolitics, savvy investors can take advantage.

With shares falling dramatically, dividend yields are on the rise. There are undoubtedly plenty of companies ravaged by the pandemic and will likely be unable to sustain their now high yield.

But I’ve spotted two dividend-paying businesses that could be excellent additions to my passive income portfolio. Let’s explore.

Investing in housing with UK shares

Persimmon (LSE:PSN) is one of the UK’s most prominent home builders. But its share price hasn’t performed all that well. Despite property prices rising and demand for housing still at an all-time high, the stock is down 13% over the last 12 months. So it’s hardly surprising that the dividend yield now stands at a whopping 9.5%!

However, as a long-term investor, the question is can this payout be sustained? Looking at the latest trading update, I believe it can. Home completions in 2021 increased by 7% year-on-year to 14,551. That’s still behind pre-pandemic construction levels of 15,885, but it’s moving in the right direction.

Meanwhile, total revenue has almost fully recovered, thanks to average selling prices jumping from £215,709 in 2019 to £237,050 in 2021. This is actually why the UK share brought back its massive 235p dividend per share payout. And with supply chain issues slowly being resolved, home completions could quickly recover, sending revenues up to new records in 2022.

Of course, there are some looming threats on the horizon. First-time buyer and other government support schemes are coming to an end in March next year, which could dent affordability. This may be enough to send property prices in the wrong direction, potentially compromising the dividend yield.

But over the long term, I don’t see housing demand disappearing, especially with a rapidly expanding population. That’s why this could be one of the best UK shares to add to my dividend portfolio.

A business with a solid dividend future?

In a pre-pandemic world, Ibstock (LSE:IBST) offered a pretty hefty dividend yield. However, with construction projects having ground to a halt in 2020, it’s not surprising the brickmaker had to temporarily cancel its dividends. Consequently, shares of this UK business crashed by 50% in March 2020 and still hasn’t fully recovered.

But despite it currently trading below 2021 levels, the business seems to be in a far stronger position. Looking at the latest trading update, revenue for 2021 is expected to have made a full recovery to £409m – the same as in 2019. And according to management, EBITDA is also anticipated to be ahead of expectations.

Dividends have since been reinstated, albeit at a reduced yield of 2%. However, with manufacturing capacity set to expand later this year, revenues, profits and, in turn, dividends could be on the verge of hitting new highs. That, to me, sounds like a buying opportunity.

There are obviously risks to consider. Being a purveyor of construction materials, demand for its products are ultimately tied with the demand for new homes. If housing affordability were to suffer, the number of newbuilds could drop, undercutting future dividend income.

Yet, despite this risk, I believe this stock could be set to make an impressive comeback. That’s why I’m considering it for my portfolio.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Ibstock. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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The Lloyds (LSE: LLOY) share price is on a roll. At 52p, as I’m writing, it’s up 40% over the last 12 months, and has more than doubled since its pandemic lows of September 2020.
 
These are impressive gains in anybody’s book. But the stock still looks cheap on a number of valuation measures.
 
The company recently compiled and published an updated consensus of City analysts’ forecasts ahead of the group’s annual results, scheduled for 24 February.
 
Let me walk you through these hot-off-the-press expectations for the 2021 numbers. And the latest forecasts for 2022, 2023 and 2024.

Upgrade

For 2021, analysts now expect Lloyds to deliver net income of £15.5bn, an underlying profit before tax of £7.84bn, earnings per share (EPS) of 8.1p and a dividend of 2.07p per share. Year-end tangible net asset value (TNAV) is forecast to be 56.6p per share.
 
All of these numbers have been upgraded from the full-year consensus Lloyds published ahead of its Q3 results. And it’s on the back of these upgrades that the stock still looks cheap.

Discount assets

Lloyds’ price-to-TNAV (P/TNAV) is 0.92, meaning buyers of the shares today are paying 92p for every £1 of the bank’s assets.
 
To give this some historical context, in the years between the Brexit referendum and the pandemic, the stock traded within a P/TNAV range of 1.15 to 1.35. If the market reverted to valuing the stock in this region, the shares would be trading somewhere between 62p and 73p (20%-40% upside from the current level).

Cheap earnings rating

In addition to the discount asset valuation, Lloyds is cheaply rated on its earnings. The price-to-earnings (P/E) ratio is just 6.4 — about half that of the FTSE 100.
 
However, the 2021 EPS forecast of 8.1p is elevated by an exceptional impairment credit. This is due to a chunk of the big impairment charge Lloyds took in 2020 reversing in 2021 on an improved macro-economic outlook.
 
With a normalisation of impairments expected going forward, analysts are forecasting EPS of 5.6p for 2022. On this basis, the P/E is 9.3. Not as cheap as calculated on the exceptional 2021 earnings, but more realistic and still a significant discount to the wider market.

Sector-leading dividend yield

A third value indicator is Lloyds’ sector-leading and above-market-average dividend yield. The expected 2021 payout represents a yield of 4%.
 
And while 2022’s EPS is set to drop back from its elevated 2021 level, the same isn’t true of the dividend. The consensus is for a 17% rise to 2.42p, lifting the yield to 4.65%.
 
Furthermore, analysts see a rosy outlook for shareholder returns beyond 2022.

Excess capital distributions

The outlook is underpinned by Lloyds’ strong capital position. The consensus view is that the bank’s year-end 2021 Common Equity Tier 1 (CET1) ratio will stand at 16.3%. This is significantly above a regulatory minimum requirement of 11% and Lloyds’ ongoing target of 12.5% plus a management buffer of 1%.
 
The City expects the company to announce a distribution of about £1.4bn (2p per share) of excess capital in the upcoming results. And similar distributions each year through to 2024.
 
These distributions could be by way of special dividends (in addition to the attractive progressive ordinary dividend I’ve already discussed). Or it could be by way of share buybacks. The majority of analysts are currently forecasting buybacks.
 
Buybacks deliver value for long-term shareholders. Simply by sitting on their shares, such holders own a slightly larger slice of the business with each tranche of shares the company buys back. It also means entitlement to a slightly larger slice of all future dividend pots.

Margin of safety

It’s important to remember that analysts’ forecasts are exactly that. Forecasts. A company may meet, fall short or exceed them. And, as we’ve seen from the upgrade to the consensus on Lloyds since October, forecasts can change — for better or worse — depending on developments in the external and/or internal environment for the business.
 
Lloyds is a bellwether of the UK economy. The consensus numbers on things like impairments and asset quality suggest analysts are modelling a fairly benign external environment for the bank over the next few years. And looking at things like the cost-to-income ratio, they’re also modelling increasing operational efficiency within the business.
 
However, Lloyds’ discount P/TNAV, cheap earnings rating and high yield, suggest the market is valuing the stock for future downgrades. Personally, I think the valuation offers some margin of safety against downgrade risk. And that Lloyds may have investment appeal for me in the near future.

Graham has no position in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If chosen well, penny stocks can potentially provide explosive returns. They come with risks, but if I can pick just a few big winners, they could really boost my gains.

Let’s consider a few successful penny stocks of the past decade. Package holiday firm Jet2 and data analytics business YouGov have been phenomenal investments in recent years. Ten years ago, both were penny stocks. If I had invested £500 into each of them a decade ago, I’d currently have a whopping £21,000.

They each achieved a market-busting annual return of 36%. That’s around 2,000% over 10 years. It’s also far above the average for UK shares. For instance, the FTSE All-Share returned just 7% per year over that period. It’s important to note that most shares would not have gained as much as these two former penny stocks. So picking the right stocks is crucial to finding explosive winners.

Top characteristics

What I’d like to do is find a few penny stocks that could achieve similar returns over the coming years. There are several factors that I noticed about Jet2 and YouGov before they made their explosive share price moves. Both shares had relatively low price-to-earnings ratios (less than 10). Also, the businesses steadily grew both sales and profits every year. Finally, both had strong balance sheets with plenty of cash. This feature can often allow a company to survive during a crisis.

Which penny stocks?

So which penny stocks could I invest £500 in now that show similar characteristics? One share that ticks these boxes is broker and adviser Finncap. With a market capitalisation of just £55m, this is a tiny company. But small companies can often have the greatest potential for share price performance. It’s a well-run business that has demonstrated steady growth. It’s also profitable and highly cash-generative. Finncap operates with a strong balance sheet and offers a relatively generous dividend yield of 5%. There’s much to like about it, but bear in mind that it operates in a cyclical industry. Business can slow during downturns. Overall though, it seems to have managed well through ups and downs.

Mining exposure

Another penny stock I’d consider is metals processing company Jubilee Metals (LSE:JLP), formally known as Jubilee Platinum. In addition to ticking all of the boxes mentioned above, it also benefits from a 30%+ profit margin.

When so much focus is given to fast-growing technology shares, it’s easy to forget some sectors like mining. I reckon Jubilee is a good way to add mining exposure to my Stocks and Shares ISA, particularly at a time of rising inflation. But there are other reasons too. For instance, Jubilee should benefit from some mega-trends over the coming years. It’s significantly exposed to copper prices, which I reckon should grind higher for two reasons.

First, the world will need more copper cables. Think cables for electric car charging. Second, rising infrastructure spending in the US should also keep demand high for new roads and bridges. That being said, forecasting metal prices is difficult. An economic downturn could easily send copper prices falling. It’s something I’ll look out for. Overall though, I reckon Jubilee is in a good place for me to buy a small number of shares for my portfolio.

Harshil Patel owns YouGov. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett does not own NIO (NYSE: NIO) stock. However, he does own shares in one of the company’s close competitors, BYD so clearly thinks electric vehicles (EVs) have a strong future.

Warren Buffett’s investment 

The ‘Oracle of Omaha’ has owned shares in the EV manufacturer for the past 14 years. He invested in the company because he could see the direction the world was taking. He also believed in the corporation’s management and its ambitious growth goals. 

I see a lot of similarities between NIO and BYD. Both companies are striving to grab market share in the global EV market. Also, they are both looking for inventive ways to entice consumers to their brands. 

I do not own NIO stock in my portfolio, but I do follow Buffett. As such, I have started to wonder if I should follow his own actions and buy shares in this EV producer as a way to invest in the global shift away from hydrocarbons towards renewable energy sources. 

The outlook for NIO stock

One of the reasons why Buffett bought shares in BYD is he believed in the company’s management. The lead team laid out a set of ambitious growth goals and worked flat out to achieve these. 

NIO is exhibiting the same kind of qualities. The business is working flat out to ramp up production. It delivered around 10,500 vehicles in December 2021, an increase of approximately 50% year-on-year. 

It is looking to hike capacity to around 600,000 units by the end of 2022 or early 2023. This is an incredibly optimistic target, but if the company can achieve this growth, it will jump into the ranks of the most productive EV makers in the world. 

And this growth potential is not the only reason I think there are a lot of similarities between NIO stock and BYD. The corporation has also developed an innovative battery solution. Consumers can swap out batteries on long journeys rather than waiting for the units to recharge. 

BYD was instrumental in creating affordable batteries for EVs, and NIO could be instrumental in changing consumers’ views towards the sector. 

Despite these attractive qualities, there are a couple of reasons why the company may not be able to repeat BYD’s success.

Growing challenges

Buffett was a very early mover with the company, investing before the rest of the world really latched on to the potential for EVs. Today, car manufacturers worldwide are spending tens of billions of pounds trying to capture market share.

Today, NIO’s most significant challenge is fighting through the competition to stand out in an increasingly crowded market. There is no guarantee the company will be able to outperform its peers. 

Unfortunately, I am not interested in buying NIO stock with this being the case. I am listening to Buffett regarding his thoughts on green energy, but I think I have left it too long to invest in this hypercompetitive market. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett’s success at investing in general stocks and shares over many years is remarkable. Between 1964 and 2020, he achieved a compound annual growth rate of around 20% via his investment company and conglomerate Berkshire Hathaway.

It’s true that others have achieved higher annualised rates of return. But few investors have kept up the positive momentum in their portfolios for as long as Buffett has.

I watched an interesting video clip recently during which Buffett mentioned six rules he applies to his own stock purchases. And I’d use them to invest £5k in stocks today.

1) Buy wonderful businesses, not cigar butts

Buffett said he first approached investing while deep under the influence of Benjamin Graham — the so-called father of value investing. In essence, the younger Buffett prioritised ‘cheap’ over ‘quality’. And that meant he would often buy the shares of weak businesses when the valuation was on the floor.

The idea was to gain from a possible quick bounce-back in the stock. And he said it was like getting one last puff from a discarded cigar butt!

However, Buffett reckons that approach was “a mistake”. And he soon switched to a new strategy prioritising ‘quality’ over ‘cheap’ and buying what he calls “wonderful” businesses at fair valuations to hold for the long term.

2) Buy only the stocks of businesses you understand

Buffett sticks to what he calls his circle of competence. If he doesn’t fully understand how a business makes money, he won’t invest in its stock. In one example, he avoided the fast-growing technology sector for years.

3) Buy stocks below what a company is worth

One idea Buffett carried forward from his days under Graham is the concept of a margin of safety. Buffett buys stocks when the valuation they’re assigning to a business is below what the business is actually worth.  And then there’s a better chance his investment will do well over time.

4) Seize the opportunity

This has a double meaning. Firstly, he acts decisively and buys shares in a company when he spots an opportunity. Secondly, he buys a “meaningful amount” of the shares. He once said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

5) Don’t sell because of price fluctuations

Once holding the shares of a great business, Buffett tends to cling onto them through thick and thin. So events such as the Coronavirus crash of 2020 and the recent tech- and growth-stock sell-off wouldn’t have shaken him from his stock positions.

6) Approach buying stocks like you would if you were buying the entire business

Within Berkshire Hathaway, Buffett does both. He buys other businesses outright and adds them to the conglomerate. And he buys the stocks of businesses listed on the stock market. But his selection and due diligence procedures are the same for both. And he considers himself to be a part-owner of the businesses underlying his stocks. Therefore, he holds them with the same tenacity as a business he controls completely.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m searching for the best penny stocks to buy. Here are two I think could generate exceptional returns for at least the next decade.

All hail the King

I think profits at Kingspan Group (LSE: KGP) could soar as the fight against climate change revs up. The building materials business is perhaps best known for the insulation products it supplies. I think sales of such materials will soar as housebuilders use larger amounts in their homes and people retrofit their existing homes.

A study by the Royal Institute of British Architects reveals the huge positive impact insulation materials have on reducing emissions. It says that improved insulation, better windows and gas boiler replacement in 3.3m UK suburban homes could cut the country’s carbon footprint by 4%.

The government’s Green Homes Grant is due to end at the end of next month. This could have a big near-term effect on Kingspan’s revenues in the UK. But it’s my view that fresh measures could be resurrected as fears over the environmental emergency inevitably rise.

Besides, it’s important to remember too that Britain accounts for just 16% of Kingspan’s revenues. The business sources almost 60% of sales from other European territories, regions where legislation to help the planet is a very hot topic.

The downside is that Kingspan’s operations are highly cyclical. So any fresh weakness in the global economy could severely damage its revenues. Still, as the fight against climate change intensifies, and housebuilding rates rise to match growing populations, I think this penny stock could still deliver big shareholder returns over the long term.

Another top penny stock to buy

Increasing my exposure to e-commerce is something I’ve strived to do in recent years. Packaging manufacturer DS Smith and warehouse operator Tritax Big Box REIT are a couple of stocks I’ve bought as online shopping volumes continue to increase.

Penny stock Ediston Property Investment Company (LSE: EPIC) is another I’m thinking of buying for the digital revolution too. The property giant specialises in operating retail parks. These are the sort of spaces which are perfect for the ‘click and collect’ age.

The retail units this penny stock lets out tend to be larger than the usual high street or shopping mall space. This gives retailers the space to store products that people order online. It’s also often simpler for customers to pick up goods from shopping parks as they can slip their purchases straight into the back of their car after collection.

The main threat to Ediston is the potential for fresh economic downturns that could hit consumer spending. This may in turn result in retail tenants asking for rent discounts or possibly even vacating.

Still, this is a risk I’d be prepared to swallow. I think the company’s long-term outlook — combined with its bulky 6% dividend yield — make it too good to miss.

Royston Wild owns DS Smith and Tritax Big Box REIT. The Motley Fool UK has recommended DS Smith and Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It seems to me as if the Boohoo (LSE: BOO) share price has become the investment the market loves to hate. The stock has been on a consistent downward trajectory for much of the past year. In fact, after falling consistently for 12 months, shares in the fast-fashion group have slumped nearly 75%. 

However, the firm has consistently reported sales growth over the same period. According to its latest figures, sales increased 20% year-on-year for the quarter ending August 2021. 

So what has been going on? Why has the stock continued to fall despite its improving fundamental performance? Could this be an opportunity for investors like myself to snap up a share of this enterprise at a discount price? 

Boohoo share price challenges 

I think there are three main reasons why the market is giving the business the cold shoulder despite its growth. First of all, the cost of doing business for the group is rising.

The firm recently reported that profits for the current fiscal period would come in below expectations due to higher order returns and rising costs. This is not what the market wants to hear from a former high-flying growth stock. 

Secondly, I think the firm is still working to rebuild its reputation with investors. After being accused of underpaying staff and poor practices in its supply chain, some investors are clearly wary about being exposed to these risks. I should note that the business has spent a tremendous amount of time and effort trying to rectify these issues. That is one of the reasons why profits have been under pressure. 

Thirdly, it looks to me as if the Boohoo share price is just too expensive. Even after recent declines, shares in the company are dealing at a forward price-to-earnings (P/E) multiple of 18. FTSE 100 peer Next, which has a far better reputation in the City, is selling at a forward P/E of 13.6. 

I think all of these factors are weighing on Boohoo shares. Unfortunately, I do not believe the cost pressures and other challenges outlined above will go away any time soon. These headwinds are the biggest threat to the company’s growth outlook right now. 

Undervalued opportunity

Still, as I have noted before, the stock appears cheap compared to its potential over the next decade. As I covered in this article, if the company can grow earnings at 10% per annum for the next decade, earnings per share could hit 14.3p by 2032. Even at a sector average P/E multiple of 13, this gives a potential price target of 186p. 

Of course, these are just projections. Still, I think they show the company’s potential over the next couple of years. With this being the case, even though I think Boohoo will continue to face significant challenges over the next couple of years, I reckon the stock looks cheap compared to its potential. 

That is why I would buy the shares for my portfolio as a speculative investment today. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.