Is Facedrive (TSXV:FD) the Next Shopify (TSX:SHOP)?

Here’s why Facedrive stock can match Shopify (TSX:SHOP) returns in the upcoming decade.

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Growth stocks have built massive wealth for long-term investors. The rapid increase in revenue and earnings help growth stocks generate market-beating returns over a period of time. For example, technology giant Amazon has gained close to 2,500% in the last decade while the returns for Netflix stand at similar proportions.

Canada’s tech heavyweight Shopify (TSX:SHOP)(NYSE:SHOP) has been one of the top-performing stocks ever since it went public in 2015. Shopify’s IPO was priced at US$17, which means the stock has returned a staggering 5,840% in just over five years.

So, a $10,000 investment in Shopify stock would be worth close to $600,000 today. Comparatively, a similar investment in Amazon and Netflix would be worth $76,000 and $55,000, respectively, since Shopify’s IPO.

Shopify’s spectacular rise has meant the company is trading at a market cap of $160.44 billion making it Canada’s most valuable stock. While most companies are grappling with business shutdowns and lower consumer spending, the COVID-19 pandemic has in fact acted as a tailwind for e-commerce companies accelerating the trend towards online shopping.

Why Shopify stock is a powerhouse?

As the dreaded virus has become a catalyst for internet players, Shopify continues to benefit from significant growth in online retail purchases. In the second quarter of 2020, Shopify sales rose by a stellar 97% year-over-year. Comparatively, its net income rose ten-fold to $129.4 million. Further, gross merchandise volume processed on the Shopify platform rose 132% year-over-year.

Its revenue growth in 2017 stood at 73% while sales were up 59% in 2018 and 47% in 2019. We can see Shopify’s revenue growth has accelerated significantly driving its stock to record highs in an environment that is highly uncertain and volatile.

Shopify remains a top stock with $4 billion in cash and no debt. Its clean balance sheet and enviable growth rates make it a winning bet for the upcoming decade. While investors will be concerned over Shopify’s high valuations, they also need to account for the company’s huge market presence and expanding addressable markets.

Can Facedrive generate exponential returns?

Another stock that can match Shopify’s massive gains is Facedrive (TSXV:FD). This company went public in September 2019 and has already returned 875% since then. Facedrive is valued at a market cap of $1.85 billion and is well-poised to disrupt the ride-hailing market in Canada.

In the first quarter, Facedrive sales were up 977% year-over-year at $387,901 while its loss swung to $1.62 million, up from a loss of $828,552 in the prior-year period. The company ended Q1 with $3.46 million in cash which means it will have to raise additional capital given its cash burn.

Though Facedrive is still loss-making, it is part of a high-growth industry and commands a premium valuation. Moreover, investors will do well to bet on the company’s growth opportunities given that its services are available in just a few select Canadian markets. Facedrive’s sales are forecast to grow at a fast clip, which will help it improve profitability and gain economies of scale over time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon and Netflix. Tom Gardner owns shares of Netflix and Shopify. The Motley Fool owns shares of and recommends Amazon, Netflix, Shopify, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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