Shopify (TSX:SHOP)(NYSE:SHOP) is the Grand Poobah of Canadian tech stocks. Up more than 5,200% since its IPO, its results speak for themselves. If you had invested $10,000 in SHOP’s IPO and held to today, you’d have a $530,000 position — not a bad result for six short years.
With that said, Shopify’s best returns are likely behind it. If SHOP were to continue rising at the rate it has been (about 110% per year), it would hit a trillion-dollar market cap in just two-and-a-half years. I’m not saying that that can’t happen, but if it did, it would put Shopify in the same league as Facebook, which does far more revenue and profit than SHOP does.
Maybe 20% per year for another decade is a realistic goal for Shopify shareholders. But doubling every year? That probably won’t be happening anymore. Still, that doesn’t mean investors can’t find those kinds of returns at all. If you’re willing to look into smaller-cap tech stocks, you could indeed get returns like those delivered by SHOP over the last five years.
Lightspeed (TSX:LSPD)(NYSE:LSPD) is a TSX tech stock that has been compared to Shopify many times. Like Shopify, it’s involved in payments and e-commerce. Also like Shopify, it has delivered superior returns since its IPO, up more than 500% in just two short years. And the similarities don’t stop there. Much like SHOP itself, LSPD is cranking out consistently strong revenue growth. In its most recent quarter, its sales grew at 221% year over year — much better than Shopify in the same period. So, this is one tech stock that could easily beat Shopify’s returns going forward.
DCBO was a classic COVID-19 “winner” stock last year. The company makes software for online training modules, so it got a big boost from the work-from-home trend. Docebo won several Fortune 500 companies as clients in 2020. That led to high revenue growth, which continues to this day. In its most recent quarter, Docebo grew revenue at 72% year over year. Unfortunately, the gross and net losses both grew wider, but this is a very young company. Overall, it has a lot of promise.
How has CSU managed to deliver such superior returns, exceeding Shopify’s own (albeit over a longer period)?
First of all, CSU went public at a much lower market cap than SHOP did, giving it more room to run.
Second, the company’s acquisition strategy has proved successful, adding new companies that increased revenue and profit over time.
Third, CEO Mark Leonard tends to find synergies between newly acquired companies and old portfolio staples, which leads to even more growth in sales and profit.
It’s a winning combination of qualities. Yet with a $46 billion market cap, CSU is still a lot smaller than SHOP is — giving it more room to run.
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.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Andrew Button owns shares of Facebook. The Motley Fool owns shares of and recommends Constellation Software, Docebo Inc., Facebook, and Lightspeed POS Inc.