Ever since Shopify (TSX:SHOP) went public back in 2015, it’s been one of the most popular growth stocks that Canadian investors like to buy for their portfolios.
Not only has it proven to have a game-changing business model and is one of the leaders in the rapidly growing e-commerce space, but its stock price has also grown unbelievably quickly in the past, as Shopify rapidly expands its business.
And today, given the state of the stock market with all the uncertainty and a weakening economy, Shopify is trading more than 65% off its all-time high reached back in November 2021.
Not only that, but the company continues to have impressive growth potential in the near term, allowing it to continue to scale its costs and improve profitability.
This year, analysts expect its sales will rise 24% from 2022, and in 2024, analysts expect another 18.5% increase in revenue, which is part of the reason why it’s still one of the best growth stocks you can buy.
Furthermore, its earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to exceed US$600 million this year and jump another 66% next year to more than US$1 billion.
On the bottom line, normalized earnings per share (EPS) is expected to hit US$0.51 this year and jump 49% next year to US$0.76.
Shopify’s growth potential is impressive, but should you invest in it right now?
Although it’s positive that Shopify continues to grow its business at an impressive pace, and it’s promising to see profitability improve as management focuses more on growing its margins, Shopify is still pretty expensive, even after it has fallen by more than 65% from its all-time high.
The stock currently trades at a forward enterprise value (EV) to sales ratio of 9.2 times. Furthermore, it trades at more than 70 times its expected normalized EPS in 2024 of US$0.76.
That’s quite expensive, especially in this uncertain market environment. Not to mention, if the economy were to worsen more than analysts are expecting, Shopify’s growth could come in lower than anticipated.
So, although Shopify is still one of the best Canadian growth stocks to buy and hold for the long term, and it’s certainly one to keep on your watchlist, one stock I’d consider buying first is Dollarama (TSX:DOL), the impressive discount retailer.
Dollarama is one of the best growth stocks to buy today
Although one of the knocks on Shopify is that the stock is pretty expensive in this environment, Dollarama is also a stock that’s not cheap either.
However, the difference is that Dollarama is much more defensive and is actually thriving in this environment as more consumers look to buy cheaper goods as a result of the rapid rise in living costs we’ve seen over the last year and a half.
For Shopify, it will be difficult for its valuation to improve until both the economic and stock market environments recover.
With Dollarama, though, the stock is certainly trading at a premium valuation already, but it’s one Dollarama deserves and could continue to increase as Dollarama proves what a reliable business it is in this environment.
Furthermore, Dollarama’s normalized EPS is expected to increase by more than 22% this year and just shy of 14% next year.
In addition, it trades at a forward price-to-earnings ratio of 26.9 times today, which is only slightly higher than its 10-year average of 25.4 times and still well below its peak of 34.6 times over that stretch.
Therefore, given the growth potential it has in both the short and long run, and while the economic environment continues to worsen, Dollarama stock is certainly one of the best Canadian growth stocks you can buy right now.
