Shopify (TSX:SHOP) remains one of the top Canadian growth stocks investors have their eye on. And while this e-commerce platform provider has certainly performed well over the past year, Shopify’s stock price is down considerably from its all-time high. Since hitting a high of $222.87 on November 19, 2021, Shopify’s stock price is still down almost exactly 50% from its peak. Thus, investors betting on new all-time highs on the horizon are essentially betting on a double-up from current levels.
Can such a surge take place? It certainly could. Shopify’s pedigree as a top growth stock has certainly been proven over nearly a decade, with investors who have held for the long-term seeing life-changing returns.
Here’s why I think Shopify’s 50% discount from its peak is worth considering right now.
Let’s start with some risks
First of all, it’s important to address the reality that Shopify’s pandemic-driven catalysts weren’t going to last. There’s certainly a reasonable argument to be made that the company’s valuation was simply unsustainable at that point in time, and too much growth was pulled forward. I’ve been critical of this stock in the past, largely due to valuation concerns, and those are certainly worth considering.
At current levels, Shopify still trades at a price-sales ratio of 15 times, so it’s pricey relative to other high-growth Canadian tech stocks. That said, in comparison to the company’s historical averages, it’s not out of line. And with growth heating up and interest rates set to decline, there’s a viable argument that could be made that this is a valuation that may actually have room to grow.
If anything, Shopify’s valuation is the key risk I think long-term investors ought to consider. While this company’s growth prospects and underlying fundamentals are among the best in the Canadian tech sector, we’ve now seen that valuation matters. Investors have fixed-income alternatives that make growth stocks work harder for investor attention right now.
Why Shopify remains a buy
The only way Shopify can grow into its valuation, and even see multiple expansion from here, is if the company’s growth rate picks up. Accordingly, I view the bull vs. bear debate on Shopify one that’s closely tied to growth. Of course, interest rates matter. And since I think rates are more likely to decline than stay stable or rise over the next year, this should be a headwind for SHOP stock.
I’m not necessarily sold on the idea that Shopify could double from here. Yes, this stock has had incredible runs in the past. But it’s not 2021 anymore, and even if interest rates decline, there’s likely o be additional headwinds tied to rate cuts. Thus, I think the jury is still out on where this stock will end the year at.
That said, long-term growth investors have done very well simply buying Shopify on major dips. I don’t think that dynamic will change in the coming years. Accordingly, this is a top growth stock I think investors can certainly buy at current levels. If Shopify dips further, that’s even better for those seeking big returns over the next decade.
