Meta Platforms (NASDAQ:META) has been one of the best-performing stocks of 2023. Up 128% for the year, it has soundly outperformed the S&P 500. If you’d bought META stock at the beginning of the year, you’d have doubled your money by now. Whether Meta Platforms can hold its newly inflated valuation is one thing, but it’s undeniable that the stock had a good run in the first half.
Incredible as that sounds, there is one Canadian tech stock that has performed even better than Meta since its initial public offering. Although it hasn’t done quite as well as Meta this year, it has risen far more since it went public in 2015. In this article, I will explore the Canadian stock that has outperformed Meta and attempt to gauge whether it still has room to run.
Shopify
Shopify (TSX:SHOP) is a Canadian tech company involved in the e-commerce industry. It develops an e-commerce payments and website solution, which allows companies to sell their products on their own websites. Compared to Amazon’s “one-stop shop,” this model allows companies to capture a greater percentage of the revenue generated by their sales. That’s a positive for vendors who use Shopify. The downside is that they have to come up with their own web traffic–on Amazon’s website, vendors can get “eyeballs” on their offers without having to pay for it up front.
Shopify’s platform is very popular with influencers and medium-sized businesses. Celebrities like Jeffree Star and brands like Gymshark host their online stores on Shopify. These large accounts are very lucrative for Shopify, because their growth makes a big impact on Shopify’s overall performance, which allows the company to grow without large amounts of marketing spend.
Financial performance
Shopify’s most recent quarterly earnings release beat expectations, delivering the following metrics:
- $1.7 billion in revenue, up 31%
- $1.3 billion in merchant solutions revenue, up 35%
- $31.7 billion in gross merchandise volume, up 58%
- $835 million in gross profit, up 27%
- A 49.5% gross margin
- $97 million in free cash flow, up for a loss (the company’s third consecutive quarter of positive free cash flow)
It was a pretty impressive earnings release. Not only did Shopify deliver positive free cash flow, it even accelerated its growth — previously, revenue deceleration had been a major concern for the company.
Valuation
The downside with Shopify stock is its valuation. The company’s stock is extraordinarily expensive by most conventional metrics, trading at the following:
- 102 times forward earnings
- 11 times sales
- 9.3 times book value
- 383 times operating cash flow
This is a pretty pricey stock — there’s no two ways about it. However, it’s not as expensive as it was in the past. There was a time when SHOP traded for a full 60 times sales! Those buying the stock today will obviously have a better experience than those who bought when the stock cost $200.
For a value investor like myself, Shopify stock is a tough sell. That does not mean that it will necessarily perform badly. It is clearly a very fast-growing company, and enough growth can cause a stock to “catch up with” its valuation. I’m not personally going to bet on that happening, but others may do well with it.
