Shopify Inc. (TSX:SHOP)(NYSE:SHOP) is likely the most popular tech stock on the TSX these days, and the shares have provided investors with solid returns. In the past 12 months, the stock price has soared by over 130%. However, in the past three months, the stock is down almost 8%, suggesting the hype might finally be dying down.
BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) is another tech stock that has been bruised up recently, dropping over 14% of its value in the last three months. However, BlackBerry’s performance in the past 12 months has been a bit more modest with the stock yielding just a 7% return.
Let’s have a more in-depth look at how these companies have performed and which one has the better outlook going forward.
Both companies have been struggling to turn profits
Shopify is still in its early growth stages, and the company has been unable to get out of the red. In the past four years, the company has posted net losses, despite seeing sales rise each year. In 2013, the company’s sales were $50 million; sales grew to $389 million this past fiscal year for an increase of 678% in just four years. The company has effectively been doubling its revenue every year, but, unfortunately, this hasn’t translated into a healthy bottom line.
BlackBerry is coming from the other end of the spectrum with revenues of over $6.8 billion in 2014 and the latest fiscal finishing with just $1.3 billion, for an 80% decline. The company has also been in the red in each of the past four years. However, BlackBerry’s most recent quarter was profitable, despite seeing a year-over-year revenue decline of over 41%.
Recent developments
Last month, BlackBerry won the rights to sell tools that encrypt messages and calls for the U.S. government. It’s unclear how much of an impact this agreement will have on the company’s bottom line, but winning the trust of the U.S. government will certainly make it easier for BlackBerry to land big clients.
Shopify recently announced that it will partner with eBay Inc. to make it easy for Shopify users to integrate products into the online marketplace. This new arrangement will enable Shopify to reach even more consumers because it will now be easier for merchants to just use Shopify rather than having to juggle multiple platforms.
Bottom line
Choosing between BlackBerry and Shopify is a tough call, and I think it will ultimately depend on whether you are a growth investor or a value investor. A value investor might see BlackBerry, the beaten-up stock, as the one that might have more upside given the plunge it has been on in the past six weeks. However, growth investors would likely opt for Shopify given the tremendous growth the company has seen so far and will likely continue to see in the future.
My choice would be Shopify because, in the long term, it has more potential. One thing the tech industry has taught us is that valuation multiples really don’t apply in this realm; sales growth is what drives stock prices up. BlackBerry may be on the decline and could be undervalued, but it is dangerous to jump in to a stock that is on its way down.
