The technology sector has seen a massive decline this year so far. After inflationary pressures made investors worried about upcoming aggressive rate hikes, the shares of most popular tech companies in Canada, including Shopify (TSX:SHOP)(NYSE:SHOP), started plunging in January. Given a huge consistent rally in SHOP stock in the last few years, investors also worry that this high-flying tech stock might already be overvalued — especially when its sales growth is expected to decline in the post-pandemic world.
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Forget Shopify stock
Early Thursday morning, Shopify released its latest quarterly results. The Canadian e-commerce platform firm’s total revenue rose by 21.7% YoY (year over year) in Q1 to US$1.2 billion per share. But it missed analysts’ revenue expectations. Its slowing subscription solutions, gross merchandise volume, and merchant solutions growth also resulted in lower profits for the company. As a result, Shopify registered a steep 90% YoY drop in its first-quarter adjusted earnings to US$0.20 per share, missing analysts’ expectations of around US$0.68 per share by a massive margin. That’s why these results triggered a big selloff in SHOP stock on May 5.
Given its long-term growth potential, I still expect its YoY financial growth trends to significantly improve after a few quarters. However, its latest big earnings miss could still make Shopify stock struggle in the coming months. That’s why if you’re not one of those very long-term investors with a good risk appetite, you might look avoid buying SHOP stock right now and look elsewhere.
Buy this one TSX tech stock instead
While the shares of most Canadian software companies have suffered due to the recent tech meltdown, some companies are still able to maintain solid sales growth trends in the post-pandemic world, unlike Shopify. The Toronto-based Dye & Durham (TSX:DND) could be a good example of one such software firm.
This Canadian tech company, with a market cap of about $1.4 billion, primarily focuses on providing cloud-based software solutions to improve the efficiency and productivity of legal and business professionals. Let’s take a closer look at its latest financial growth trends and future growth expectations and find out why it could be a better buy than Shopify at the moment.
Solid financial growth trends
In the last three quarters, Dye & Durham’s revenue-growth rate has been between 225% to 494% YoY. Similarly, its adjusted gross profits have also positively grown between 133% to 466% YoY during the same period. Moreover, Street analysts expect Dye & Durham’s revenue to more than double in its fiscal year 2022 to around $483 million compared to $209 million in the previous fiscal year, as the company continues to focus on building scale and diversity within its business.
In order to accelerate its business growth further, Dye & Durham acquired Telus’s financial solutions business in December 2021 in a deal worth $500 million. The deal will help DND expand its product capabilities in the real estate value chain segment and broaden its customer base.
In my opinion, all these positive factors and strong financial growth expectations make Dye & Durham stock a better buy than Shopify — at least for now.
