Shopify (TSX:SHOP) was once the textbook definition of a “millionaire-maker” stock. From the time the company went public until January 3, it rose 2,700% in the markets. From its initial public offering to its all-time high, it rose 6,031%! 6,031% of $10,000 is $6.03 million, so those who bought SHOP low did in fact have an opportunity to become millionaires.
The question is, “Could the stock still be a millionaire maker?” In a way, it’s a meaningless question. The important query is, “Of course it could be a millionaire maker, but is it one now?“ However, as you’re about to see, whether the stock has the potential to be a millionaire is a meaningful and answerable question. In the ensuing paragraphs, I’ll attempt to answer it.
What characteristics do millionaire-maker stocks possess?
It’s pretty hard to identify millionaire-maker stocks in advance; if it was easy, everybody would be a millionaire. However, looking back at history, we can identify some commonalities of stocks that made people millionaires with minor sums (say $10,000) invested up front:
- Small market caps. Large-cap stocks can do quite well but probably won’t make you a millionaire starting with just $10,000. As Warren Buffett says, “Size is the anchor of performance.”
- They have good chief executive officers (CEOs). Good stocks have good management backing them, so it should be no surprise that many top companies have CEOs with good reputations.
- They’re relatively unknown. Usually, future millionaire-maker stocks are not widely known to the public. Shopify, for example, was not well known when it initially went public.
Shopify was a millionaire maker in the past
Looking at the characteristics that millionaire makers possess, we can see that SHOP has a good few of them. It certainly has a well-regarded CEO — Lutke is respected in Canada’s tech scene — and its market cap is not high on a sector-relative basis. The tech industry has companies in it with market caps of $2 trillion, $3 trillion or more. However, we wouldn’t call Shopify “relatively unknown” today. After Jim Cramer talked about it repeatedly on his show, Shopify is well known by the average investor.
So, we’ve got Shopify with two out of three characteristics that millionaire-maker stocks typically possess. With that out of the way, will it go on to become a millionaire-maker once more?
Why the future likely isn’t as bright
Looking at how much Shopify’s revenue growth has decelerated over the years, it appears that it will not return to being a millionaire maker anytime soon. The company grew sales at close to 90% during the COVID lockdown period, last quarter, it only grew 25%. 25% might sound like decent growth, but remember that this stock was priced for high growth to begin with. If revenue growth declines to 13% again — like it did in one 2022 quarter — the odds of the stock price falling will be high.
Foolish takeaway
Shopify today is probably no millionaire maker, but it might deliver a strong, if not amazing return. The company still has high growth, and, while it isn’t cheap, the stock would be worth buying in a scenario where the compounding at 25% annually went on for five years. So, it’s not the craziest thing out there you could buy — not by a long shot.
