E-commerce stocks went from red-hot to white-hot over the last few months, with many tech-unsavvy firms transitioning to digital platforms to keep the lights on amid the coronavirus crisis. Regardless of when the pandemic ends, the trend of e-commerce is sticking around. Many firms that have discovered the true value of having a robust digital presence in this crisis may have no desire to return to the brick-and-mortar retail store and would rather pocket the cash that would have gone towards rent.
As the platforms and tools of e-commerce providers become more potent with time, I believe that merchants will gradually increase their digital spending, as innovative new offerings demonstrate their value. So, it’s not just new merchant additions that Canadian e-commerce investors should be bullish about; it’s the upselling opportunities that could give average revenue per user and earnings a sustained jolt over the long run.
Without further ado, consider the following two Canadian e-commerce stocks if you’re looking to bet big on the secular story that’s far from being over.
Shopify: A Canadian e-commerce legend with a visionary founder
Surprise, surprise. Shopify (TSX:SHOP)(NYSE:SHOP) tops the list of top Canadian e-commerce stocks you should be buying. The stock has had a glorious run over the years, and it’s nowhere close to being done yet. The firm is riding high on pandemic tailwinds that have massively accelerated adoption of it Shopify’s invaluable platform that, as I’ve mentioned countless times in previous pieces, is a critical lifeline for small- and medium-sized businesses (SMBs) everywhere amid this unprecedented crisis.
Shopify stock has also become one of the most expensive e-commerce stocks you’ll ever come across in your investment career, and I’m not talking about the stock’s dollar amount. Get this, Shopify shares trade at 68.3 times sales and 40.5 times book. That’s nothing short of unprecedented, and while such lofty valuations are indicative of rampant speculation and momentum chasing, I think that the inherent value to be had with Shopify stock is just as profound as its pie-in-the-sky valuation metrics. Just how profound remains ultimately unknown.
While there’s zero room for error for Shopify moving forward, I think it’ll be hard to stop the visionary founder and CEO Tobias Lütke. Bet against the man with a short position in Shopify, and you’ll find yourself in tears, even though the risks of a vicious correction are high with Shopify stock at these heights.
While I’d much prefer you wait for a pullback before buying the e-commerce stock, I think it’s a wise idea to get some skin in the game today, because the company is firing on all cylinders. Its stock is likely to continue defying the odds of gravity over the next several years.
Lightspeed POS
Lightspeed POS (TSX:LSPD) is a company that I like to think of Shopify’s little (and more physical) brother. In prior pieces, I’ve outlined why I thought the Lightspeed story “rhymed” with Shopify and why the e-commerce stock was a must-buy after shares imploded on themselves (falling over 70%) amid the coronavirus market crash.
The firm may have an e-commerce platform and a suite of tools that are viewed as invaluable amid this crisis through the eyes of battered SMBs, but it’s largely a commerce-enabling firm that caters to SMBs both the physical and digital realms. In a way, Lightspeed is a great on-ramp to the realm of the digital for those tech-unsavvy firms that have opted to remain brick-and-mortar retailers at heart.
As the pandemic continues dragging, the demand for Lightspeed’s services is likely to keep climbing. Like Shopify, Lightspeed’s pandemic tailwinds are strong, and so too will be the long-term upselling opportunities for the innovative firm that trades at a fraction of the valuation of the likes of the white-hot Shopify.
Lightspeed stock trades at 19.4 times sales and 7.3 times book.
For e-commerce stocks that have demonstrated resilience during this pandemic, are the valuations that expensive?
I don’t think so, but I think shares of Shopify and Lightspeed are a tad on the frothy side after more than tripling off those March lows. My takeaway? Let the e-commerce stocks cool off, then get ready to back up the truck.
