Shopify (TSX:SHOP)(NYSE:SHOP) is a wonderful tech sensation that put Canada’s growth scene on the map, so don’t think that I’m bearish on the name in any form. I’m a massive fan of the business and its founder Tobi Lütke. I think the company has plenty of gas left in the tank, as it continues to go after the small-scale portion of the e-commerce market, which is still lightly penetrated. In time, though, Shopify will mature in a way such that its growth will begin to taper off. With less favourable year-over-year comparable quarters coming up, it’ll seem like the best days of Shopify will be in the rear-view mirror.
Still, given the company has demonstrated its ability to expand into new growth verticals (think Payments), the fact that the company has yet to capture all of its Total Addressable Market (TAM), and the profound acceleration in e-commerce brought forth by the COVID pandemic, it’s unlikely that Shopify is done on the growth front.
Sure, people will enjoy physical shopping once COVID goes away. But at the end of the day, people will still have an appetite for online shopping. And that will not go away with the pandemic. As such, I remain a bull on Shopify the stock. That valuation, though, is a different story. Although Shopify rightfully deserves a hefty multiple on its stock, just how high is the main question that should be on the minds of investors.
Shopify: Is a Canadian growth stock for the ages, but it’s not the only TSX tech titan out there
You see, Shopify is an incredible growth king with high expectations ahead. And as a now nearly $250 billion company, the odds of the name being a 10-bagger from here are far lower than they were five years ago, when Shopify was not the household name it is today. That said, I could be wrong. Shopify could become a $2.5 trillion company one day. But in terms of odds, I’d argue some of Canada’s other tech titans, especially those with smaller market caps, are worthier bets if you seek plentiful upside at a more reasonable valuation.
Consider Nuvei (TSX:NVEI) and Kinaxis (TSX:KXS), two TSX exclusives that should not be ignored by people who seek solid returns over time.
Nuvei and Kinaxis are up-and-comers in the payments and supply-chain management industries, respectively. Both names have clocked in magnificent returns over this past year, but with modest market caps between $5 and $25 billion, I’d argue that both names may have a means to really take off over the next five years. Of course, that will depend on the capabilities of management and each firm’s ability to fend off the competition.
Kinaxis is a cloud darling whose service really pays for itself. Nuvei is an electronic payments play that is a rare breed, an innovative fintech on the TSX Index. Kinaxis and Nuvei stock trade at 33.3 times sales and 19.5 times sales, respectively. Both unprofitable companies are quite pricey in this frothy market. Still, I think between the two, you have to go with Nuvei stock, despite the much higher multiple. Why? It has better growth and an incredible founder and CEO in the form of Philip Fayer. He’s a brilliant manager, and I think he has what it takes to take Nuvei to the next level.
Undoubtedly, Nuvei is already a profound success as far as TSX stocks are concerned. But could Nuvei have the potential to cause a splash on Wall Street, as Shopify has? I’d argue that’s very likely and just a matter of time.
