As of this writing, there may be many investors that remain very hesitant to buy shares of growth stocks. That comes with good reason. For over the past two years, many of the most exciting growth stocks have faltered, falling more than 50%. However, since the start of this year, many growth stocks have started to show signs of recovery. That includes tech companies like Shopify (TSX:SHOP), which has gained more than 15% year to date. Can it continue to climb? Here’s what I think.
Could Shopify stock continue to rise in value?
It’s very difficult to predict where a stock could be in the next month, let alone the end of the year. However, there are things that investors can use to help them estimate the trajectory of a certain stock. In Shopify’s case, we could look at the growth of the e-commerce industry. Although e-commerce is very popular today, sales are largely driven by younger consumers. If that trend continues, and future consumers continue to push and increase the demand in that industry, then it bodes very well for Shopify’s business.
Last week, the company presented its fourth-quarter (Q4) 2022 earnings report. Shopify showed that its quarterly revenue continued to climb, reaching US$1.7 billion for that period. That represents a 26% year-over-year increase. In addition to that strong sales performance, Shopify announced that its operational efficiency has continued to improve. In Q4 2022, the company posted a gross profit of nearly US$800 million. For the entire year, Shopify’s gross profit totaled about US$2.8 billion — an 11% increase over the year prior.
Using its recent financial performance, and the global trends surrounding its industry, investors could estimate where Shopify stock could be over the next few years. If you asked me, I would say I think there’s a more than fair chance that the stock could be worth a lot more than it is today.
What should investors look for?
Of course, there are many risks when it comes to investing in the stock market. Shopify stock isn’t immune to that. The company faces heavy competition from the likes of Amazon and other e-commerce companies. However, despite that competition, Shopify has already proven its value in the industry, attracting more than one million merchants to its platform. However, investors should be prudent and keep an eye on any developments that may change the landscape of the e-commerce industry.
Investors should also note that consumers could be affected if inflation begins to rise at a very fast rate once again. An environment where inflation is rampant could cause many consumers to pinch their wallets, negatively affecting Shopify’s business.
On the bright side of things, investors should watch for new developments in Shopify’s business. The company has continued to innovate, as it pushes to maintain its leadership position within its industry. Shopify has done a great job of expanding its partnership network. By linking up with the likes of Walmart, Spotify, Meta Platforms, Alphabet and more, Shopify gives its merchants every opportunity to be in front of as many consumers as possible.