Investing in quality growth stocks can help you derive game-changing returns over time. It’s essential to identify companies that are part of a rapidly expanding market, allowing them to grow revenue and earnings consistently.
One such TSX stock is Shopify (TSX:SHOP), which has already returned over 3,000% since its IPO (initial public offering) in 2015. So, an investment of $20,000 in SHOP stock soon after the company went public would be worth over $629,000 right now.
While past returns don’t matter much to future investors, let’s see if a similar investment in Shopify can make you a millionaire in the next 10 years.
Shopify is expanding its ecosystem
Shopify is building a global e-commerce ecosystem, providing enterprises with a growing set of tools and capabilities to set up an online presence. Valued at $125 billion by market cap, Shopify has onboarded two million merchants to date, allowing it to end the last four quarters with US$6.6 billion in sales.
Shopify is the second largest e-commerce platform in the U.S., with a market share of 10%, providing the company with a wide economic moat. The platform also accounts for 6% of e-commerce in Western Europe.
Shopify has increased its gross merchandise value, or GMV, from US$41.1 billion in 2018 to US$197.2 billion in 2022. In this period, its revenue has risen from US$1.1 billion to US$5.6 billion.
Shopify forecasts its total addressable market for e-commerce at US$238 billion, providing it with enough room to grow the top line in the upcoming decade. Further, if we account for Shopify’s offline businesses and other segments, its total addressable market expands to almost US$850 billion.
While revenue growth has decelerated after the COVID-19 pandemic, Shopify is on track to increase sales by 23.6% to $9.25 billion in 2023 and by 19.4% to $11 billion in 2024, according to consensus estimates.
What is the target price for Shopify stock?
Due to Shopify’s focus on improving the bottom line, it has exited unprofitable businesses and reduced its employee count. Wall Street now forecasts Shopify’s adjusted earnings to improve from US$0.04 per share in 2022 to US$1.04 per share in 2024. Priced at 70 times forward earnings, Shopify stock is quite expensive.
Moreover, analysts expect Shopify’s earnings to expand to US$11 per share by 2027. So, if the TSX stock is priced at 30 times earnings, it should surge to US$330 in the next four years, indicating an upside potential of roughly 300%.
Out of the 31 analysts covering Shopify stock, 10 recommend “buy,” 19 recommend “hold,” and two recommend “sell.” The average target price for Shopify stock is US$74.15, which is similar to its current trading price.
The Foolish takeaway
Shopify is among the fastest-growing, large-cap stocks in Canada. However, Shopify stock will have to surge 5,000% from its current price, allowing you to turn $20,000 into $1 million.
It means Shopify will be valued at a market cap of $6.25 trillion, which is impossible. While Shopify is positioned to outpace the broader markets, it is unlikely to be a millionaire-maker stock at the current valuation.
