E-commerce giant Shopify (TSX: SHOP) has been a victim of the “Curse of Canadian Tech.” The term was coined by investors who noticed that Canadian tech stocks that become extremely valuable soon lost their dominance. This curse impacted BlackBerry and Nortel before eventually hitting Shopify.
Shopify stock reached an all-time high in November 2021. At the time, the company was worth roughly $268 billion, making it the most valuable public company in the country. However, that peak was short-lived. The stock has plummeted 62.5% over the past two years.
Nevertheless, Shopify has delivered substantial wealth to early investors.
Total return
Shopify went public in May 2015. At the time, the stock was listed at $3.5. Now, it trades at $80.25. That’s a total return of 2,290% over the course of eight years or a compound annual growth rate of 48.75%.
Put another way, investing $10,000 in Shopify stock at its initial listing price would be worth $229,000 today.
Shopify’s performance, despite its recent downturn, is phenomenal. The company has outperformed all major indexes over the past eight years. The S&P 500 is up only 108% since mid-2015, while the S&P/ TSX Composite Index is up 31.5% over the same period.
Shopify even outperformed other tech stocks. The Invesco QQQ Nasdaq Index is up 235% since mid-2015.
The stock was driven by the rapid adoption of online shopping and Shopify’s stellar growth rate over the past decade. However, growth and adoption are likely to be slower in the years ahead.
Shopify’s future
Shopify’s growth rate has decelerated in recent years. In its most recent quarter, revenue was up 27%. That’s better than most companies but still far lower than the triple-digit growth rate the company experienced a few years ago.
Gross income is growing even slower. Gross profit was up just 12% year over year in the first quarter of this fiscal year. Shopify faces further headwinds that could keep growth limited for the next few quarters. Consumers are struggling with higher borrowing costs and rampant inflation, which could dampen their appetite for online shopping.
However, the stock’s valuation may have priced this in. The stock trades at a price-to-sales ratio of 13, which is below its long-term average.
Shopify’s management team has recently offloaded some non-core operations (such as Shopify logistics) to focus on its core business. Recent layoffs may have also improved the company’s cost structure. They also expect to deliver free cash flow in each of the four quarters this year, so the financial strength is improving.
Shopify’s gains in the future may not be very impressive, but the downside could be limited from current levels.
Bottom line
Shopify has lost two-thirds of its value in recent years but is up 23-fold over the past eight years. It’s been an excellent wealth creator for early investors. However, its growth could be much more modest in the years ahead.
