Shopify Stock Could Be the Ultimate Market Beater in 2023

Here’s why investors in Shopify (TSX:SHOP) stock may not want to sell their shares at a loss and may want to consider adding here.

| More on:
Lady holding mobile phone and shopping bags

Image sources: Getty Images.

Given the current slump in the Canadian stock market, investors are in search of stocks that can provide them with market-beating returns. However, to do so, they need to select companies that have strong financials and solid long-term growth plans and that can help them outperform the industry.  

In this regard, here’s why I think Shopify (TSX:SHOP) is an excellent choice to consider right now.

Shopify posts excellent five-year returns

Shopify’s recent earnings reports have highlighted the strength of this e-commerce company’s overall business model. Of course, looking at the performance of SHOP stock since the beginning of 2022, investors may take a different view.

That said, over the past five years, Shopify’s stock price is still approximately 200% higher than where it started. Thus, even factoring in the massive decline from its peak seen last year, SHOP stock has still provided investors with a compounded annual growth rate of 24%. There are few companies in this market that have the potential to run like Shopify in a bull market. Thus, for those considering preparing for the next bull market run, this e-commerce platform provider (with revenue growth of around 40% per year, nonetheless) is a great option to consider.

That’s not to say there aren’t risks with SHOP stock

Despite impressive growth prospects over the long term, Shopify’s valuation is what has concerned many investors. This is still a stock that’s mostly valued on a price-to-sales basis. While Shopify had turned profitable in the past, it’s since posted negative earnings over the past year and could continue to be a loss-producing company in 2023.

Investors don’t like companies that lose money in this environment. Right now, it’s not about top line growth. Investors care about profitability. Thus, the metrics investors use to assess Shopify appear to have shifted, and this stock remains out of favour.

Canadian e-commerce giant beats Q4 earnings estimates 

That said, I think there’s actually a lot to be liked about Shopify’s forward-looking prospects. Shopify brought in adjusted earnings per shares of US$0.07 in the fourth quarter (Q4), signaling perhaps it’s turning the corner toward becoming a profitable company again.

Of course, it’s consistent profitability investors want. Thus, it may be a few quarters until these numbers are fully appreciated.

But on the top line, Shopify’s revenue growth of more than 25% remains robust. While the market may have been expecting more from this high flyer, its year-over-year comps remain difficult to beat. As Shopify gets larger, its growth metrics become more difficult to beat. That’s just the way of life for large-cap tech.

Thus, Shopify’s Merchant Solutions segment, which saw year-over-year growth of 29.7% this past quarter, will need to pick up the pace. Additionally, growth of 13% in gross merchandize value and 14% growth in subscription profits need to ramp up.

I think Shopify and its team are up to the task. We’ll just have to see if the macro environment allows it.

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.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

More on Investing

Dividend Stocks

Enbridge Stock: This Dividend Aristocrat Looks Like a Steal in 2023

Here are some key factors that make ENB a great Canadian dividend stock to buy on the dip in 2023.

Read more »

Stocks for Beginners

Invest in These Stocks to Make the Most of Your TFSA

If you are unable to find fundamentally strong stocks for your TFSA in 2023, here are two great stock picks…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

U.S. Debt Ceiling: Is It Safe to Invest Right Now?

The U.S. debt ceiling is in the headlines again. You can play it safe by investing long term in wonderful…

Read more »

Stocks for Beginners

2 TSX Stocks to Smooth Over the Market’s Bumps

Here are two of the safest TSX stocks you can buy in June 2023 without worrying about high stock market…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

1 Bank Stock I’d Buy Today (and 1 I’d Sell)

Bank earnings season is upon us, and I’d look to buy Bank of Nova Scotia (TSX:BNS) while avoiding another top…

Read more »

Credit card, online shopping, retail
Tech Stocks

Should You Buy Lightspeed Stock After Its Q4 Earnings?

Despite its volatility, I expect Lightspeed to outperform in the long run due to its healthy growth prospects and cheaper…

Read more »

oil and natural gas
Energy Stocks

These Canadian Energy Stocks Are Bargain Buys for 2023

Here are two of the best Canadian energy stocks you can buy on the dip in 2023 to hold for…

Read more »

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank Stock Pays a 4.37% Dividend Yield, But Another Stock Looks Even Better Today

Royal Bank of Canada (TSX:RY) may be the top dog on the TSX, but I prefer another dividend stock for…

Read more »