Shopify (TSX: SHOP)(NYSE:SHOP) has been one of the hottest stocks on the TSX over the past few years. It’s the closest thing Canada has to Amazon, as the company has achieved incredible growth in just a short period of time. And the two companies could even be competing head on now that Shopify is getting into the fulfillment business. Whether it’s a move that will pan out is still a big question mark at this point, but if there’s one thing we’ve learned from high-growth stocks, it’s that they always look for new ways to grow. Staying content is not what’s attracted investors to Shopify.
Instead, it’s been the company’s remarkable growth that has helped Shopify become one of the TSX’s top stocks and why its valuation reached the $50 billion mark this year. To put into context just how much growth the company has achieved, investors need to look no further than the company’s top line. From just over US$200 million in sales in 2015, the company banked over US$1 billion in sales in 2018. That’s an increase of 423% for an average compounded annual growth rate of 74% per year.
There aren’t many companies that can lay claim to that kind of growth, especially not while also reaching the US$1 billion mark. It speaks to the company’s success and its ability to grow internationally as well.
Just how much could you have made investing in the stock?
To put this into dollars for investors, consider if you had invested just $10,000 in Shopify back at the beginning of October 2016. Even if you had bought around the high, you’d be looking at a price of about $59 a share — good enough to own approximately 170 shares. Fast forward to today, when you could have cashed in those shares from anywhere between $400 and $500 over the past several weeks. At the low end of that scale, you’d be looking at a sale worth $68,000, while at the high end, you could have sold the shares for more than $85,000.
The wide range speaks to the stock’s volatility, but you’d still be looking at an incredible return of more than 570%, even if you sold after the recent dip in price. Had you invested even earlier, your returns obviously would have been even greater.
Takeaways for investors
There are some important conclusions we can draw from Shopify’s success.
The first is that you don’t have to invest in penny stocks in the hopes of being able to generate impressive returns. Shopify was a formidable company three years ago that was already achieving significant growth. While there was no guarantee that it could have become the amazing success that it is today, it was not nearly as risky as investing in a stock on the Venture Exchange or a lowly valued company without much of a track record.
Second is just how important a good growth stock can be. Dividends are safe, but no one is going to make these kinds of returns investing in dividend stocks. While you’ll take on some more risk in the process, if you want to try and be more aggressive and grow your portfolio at a faster rate, growth stocks are the way to go.
Finding the next Shopify is certainly not easy; few companies will be able to achieve its impressive growth. However, even more modest returns could still outperform dividend stocks and help accelerate your portfolio’s growth.
