The e-commerce wave that picked up during the pandemic brought 10-year growth in a single year for Shopify (TSX:SHOP). It became the most valued stock on the TSX by market capitalization, replacing the 159-year-old Royal Bank of Canada from its top spot for a brief period. However, the 2022 tech bubble burst saw a correction, and Shopify had to do layoffs and exit the logistics business to sustain the sudden slowdown in revenue growth. Now, Shopify is gradually growing its business. If the stock reaches its 2021 peak of $222 in 10 years from 2020, it could more than double your money by 2030.
Is Shopify stock a buy now?
Shopify stock is trading closer to its holiday season peak, growing more than 80% in the last 12 months. This surge has inflated the stock price to 15.6 times its sales per share. It means for every $1 of sales per share, you are paying $15.6. Since e-commerce is a volume-based business, the price-to-sales ratio is the right way to value the stock.
Shopify’s high valuation made sense when its sales grew 80-100% year over year. But the company’s sales growth has slowed to the 20% range. At this growth rate, 15.6 times value looks expensive. Moreover, Shopify has not given any guidance around accelerated growth except for the holiday season sales. Shopify stock is not a buy at its current peak price of around $110, even from a medium-term perspective.
If it continues its 20% sales growth, its shares could probably more than double by 2030.
Two stocks that could be worth more than Shopify stock by 2030
On the contrary, some tech stocks have a higher probability of growing their valuation steadfastly and being worth more than Shopify by the end of the decade.
Descartes Systems stock
Shopify exited the logistics business, but Descartes Systems (TSX:DSG) has been consistently growing its logistics and supply chain management business. Logistics is all about efficiency. People, goods, and information travel locally and across borders, and companies keep looking for the most efficient way to get the entire supply chain on one platform and execute the trade from the factory to the doorstep. Descartes’s end-to-end solutions help companies make their supply chain efficient.
Whenever trade activity increases, Descartes’s revenue increases. Unlike Shopify, Descartes caters to a broader consumer base, from airlines to manufacturers to e-commerce companies. Hence, weakness in one vertical is offset by strength in another, fading any effects of seasonality.
The company has grown its revenue and improved its net profit margin from 11% in 2020 to 21% in 2023, after five-plus years of stagnant profit margin. Looking at these improving fundamentals, you could buy this stock with confidence, knowing that it will give you a positive return in the long term. It even surpassed its 2021 peak, depicting its resilient growth.
Descartes stock has the potential to give you 20% compounded annual growth (CAGR) in the next five years. This confidence is better than Shopify’s high volatility, making Descartes a better investment in terms of risk vs. reward.
Dye & Durham
Unlike Descartes, Dye & Durham (TSX:DND) stock has been in a downtrend, trading 75% below its 2021 peak. The company offers mission-critical software for legal practice management. However, its significant exposure to the real estate vertical and two failed acquisitions caught the stock in a downtrend. The rising interest rates burst the real estate bubble, and companies slashed their tech budget amid business uncertainty. All this affected Dye & Durham’s revenue.
As the economy recovers, the real estate sector will revive and drive DND’s revenue in the long term. The tech company is focused on debt repayment, as rising interest costs are eating its profits. What makes me bullish on the company is its software stickiness and its bottomed-out stock price.
If Dye & Durham stock returns to its 2021 peak of over $52 in the next five to six years, it could quadruple your money, making it an investment worth more than Shopify.