Shopify Inc (TSX:SHOP) stock has been one of the best-performing TSX stocks since it went public. Up 2,241% in that period, it has vastly outperformed the market. Such numbers can be hard to put into perspective, so in this article, I will crunch the numbers on how far an investment in Shopify would have taken you if you’d invested on its IPO date.
Approximately $234,100
If you had invested $10,000 into Shopify on its IPO date, your position would be worth about $234,100 today. The math on that is:
- A 2,240% return on $10,000 is $224,100.
- Add the $10,000 you started with, and you get to $234,100.
Not a bad result for a mere eight-year period! Of course, the returns were even better back in 2021, when SHOP was actively beating earnings and growing left, right, and center. Things have slowed down a little since then, and the stock has fallen from its peak level, but it has been showing some strength again in recent months.
Can Shopify repeat this feat once more?
It’s one thing to observe that a stock did well in the past, but quite another thing to say that it will do it again in the future. A 2,241% return is an incredible result, and at today’s market cap, it’s unlikely to be repeated. Shopify has a $104 billion market cap today. If it rose another 2,214% from here, it would be worth as much as Apple! That’s not likely to occur. However, there is still a possibility that Shopify stock will perform reasonably well in the future.
For one thing, Shopify still has pretty good growth. In its most recent quarter, it delivered:
- $49.6 billion in gross merchandise volume, up 15%.
- $1.5 billion in total revenue, up 25%.
- $717 million in gross profit, up 12%.
- A $193 million operating loss.
- $86 million in free cash flow, up from a loss.
Overall, it was not the worst performance Shopify put out in the last 12 months. In fact, it was one of the best. Growth remained above average – although not like the levels it was at in 2020 and 2021 – and there were even positive profits if you use free cash flow as the profit measure.
It was a pretty good showing. The only problem is that Shopify stock is getting very expensive. At today’s prices, it trades at:
- 12.9 times sales.
- 10.1 times book value.
- 147.6 times the best estimate of next year’s operating cash flow.
- 203 times the best estimate of next year’s profit.
Clearly, Shopify is pushing it with valuation here. It would take a lot of growth for Shopify, as a company, to be worth what SHOP stock trades for in the market. However, it wouldn’t necessarily be impossible. If Shopify can keep growing at 25% for another five years, it will start to catch up with its valuation. For now, though, it has to be said: this is a very pricey stock.
Foolish takeaway
Taking everything into account, it looks like Shopify could perform reasonably well for investors going forward. However, it likely won’t rise another 2,241%. That was a rare feat that’s unlikely to be repeated.
