Despite the ongoing broader market turmoil, Shopify (TSX:SHOP) is continuing to be among the top-performing Canadian stocks in 2023. At the time of writing, the SHOP stock had a market cap of $90.3 billion, as it traded at $70.44 with about 50% year-to-date gains. In comparison, the TSX Composite Index has seen about 2% value erosion so far this year.
But can this rally continue in the coming years? Before discussing where Shopify stock could be in five years from now, let’s take a closer look at some key recent developments that can have a major impact on its price movement in the future.
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Strength in Shopify’s financials continues
One of the most important factors that decide a stock’s price direction is its financial growth trends. And here, Shopify won’t disappoint you. As COVID-19-related restrictions affected everyone, more small- and medium-sized businesses than ever globally were forced to build their online presence. This trend led to a big demand surge for Shopify’s easy-to-use e-commerce platform in 2020. This is one of the key reasons its sales jumped by 86% YoY (year over year) in 2020. This factor and Shopify’s ability to cater to this sudden demand surge helped it post solid adjusted earnings of $0.40 per share that year, showcasing an eye-popping 1,227% YoY increase. As a result, in 2020, SHOP’s share prices popped 178.4%.
While its business grew rapidly during the coronavirus lockdown phase, Shopify continued to make investors cautious by reminding them that this sudden spike in demand is temporary and will not last forever. And this is exactly what happened in the next couple of years. As easing COVID-related restrictions encouraged businesses to reopen, Shopify’s sales growth started to decline.
Nonetheless, we must note that the company has still posted a strong double-digit YoY sales growth in each quarter since then. Despite that, however, Shopify stock crashed by 73% in 2022, which made it look way too undervalued.
In the first half of 2023, its revenue growth rate stood strong at 28.1% YoY, helping it regain investors’ confidence. That’s one reason why SHOP stock is outperforming most of its peers and the broader market in the ongoing year.
Where will Shopify stock be in five years?
Based on its 2022 gross merchandise volume data, Shopify only had nearly 10% e-commerce market share in the United States. Besides its strong ongoing financial growth trends, Shopify is trying to further brighten its future growth outlook by expanding its presence in the U.S. market.
Also, Shopify is seemingly not leaving any stone unturned to attract more merchants to its platform. In line with recent technological trends, earlier this year, the Ottawa-headquartered commerce platform provider introduced Shopify Magic, its artificial intelligence-powered tool to help merchants generate product descriptions. Similarly, Shopify is planning to soon make its AI assistant available with an aim to help merchants start, run, and expand their stores easily.
Although it’s nearly impossible for anyone to predict at what exact price level SHOP stock will trade after five years, it certainly has the potential to double in value by that time, considering its strong financial growth trends and focus on making its platform more appealing for merchants using AI and other innovative solutions. Despite its 50% year-to-date gains, it’s still down 60% from its 2021 closing level, which makes SHOP look even more attractive to buy now and hold for at least the next five years.
