For investors in Tesla (NASDAQ: TSLA), the past five years have been very lucrative from a growth perspective. Indeed, over the past five years, shares of the EV maker rose approximately 2,200%! Finding a company that beat these kinds of returns is difficult to do.
Enter Shopify (TSX: SHOP)(NYSE:SHOP). This Canadian technology player has seen five-year returns of approximately 5,300%! This is more than double the return of companies like Tesla — an absolutely ridiculous pace of growth.
Here’s why I think Shopify is a much better growth pick right now than Tesla.
Both have secular growth trends, but one is likely to retain its market position
I like the secular tailwinds supporting each company. Tesla’s position as the market leader in the electric vehicle revolution is attractive. This is a company with a tremendous amount of growth potential in a sector that is otherwise generally unattractive to many investors.
However, in recent weeks, it appears the competition is stepping up its game. Competitor General Motors announced the company’s goal of producing only EV automobiles by 2035. This has, unsurprisingly, caused a revaluation in this sector. With more competition comes the threat that Tesla’s prime market position may be threatened. I think the threat of competition eating away at Tesla’s market share lead was underpriced by the market for some time. Accordingly, I think Tesla’s growth thesis long term is going to be under more pressure than that of Shopify.
Indeed, Shopify is the leader in providing e-commerce solutions to its customer base. I think Shopify’s product superiority provides a durable competitive advantage for this company long term. The threat of competition in its core business is lower, and Shopify stands to benefit to a greater degree from the growth potential stemming from the powerful e-commerce transition. Thus, I think Shopify has a much better shot at retaining its market position over the long haul.
Bottom line
Growth investors have seen amazing returns holding onto either company over the past five years. However, I think the outsized returns Shopify has provided are warranted. Further, I think Shopify is a stock that could a bid if the company outperforms on its upcoming earnings call. Shopify is scheduled to report earnings on February 17. If Shopify once again beats analyst expectations, I think there’s more upside on the horizon.
Shopify is a stock that hasn’t disappointed investors yet. Until this company proves its growth thesis wrong, there’s a ton of support with this stock. I think growth investors forced to choose between the two companies ought to side with Shopify right now.
