Investing in high-return growth stocks has proven to be the most lucrative investing strategy over the past 15 years. Indeed, since the financial crisis (and prior to that, the Dotcom bust), tech stocks tend to have long secular growth periods that provide long-term investors with excellent value. One such top-performing growth stock in the Canadian market is Shopify (TSX:SHOP). Zooming out and looking at the company’s long-term chart below, it’s clear that investors who have held through thick and thin are still up big, if they bought this stock at the right price and simply held.
I think this same thesis will likely work out well over the long-run. Shopify has a number of secular growth catalysts worth considering. Here’s why I think SHOP stock should be on investors’ radar screens right now, as it steadily marches toward previous highs.
Shopify’s business model is timeless
Shopify’s status as an e-commerce platform provider for predominantly mid- and small-sized businesses has led to impressive growth in the past. During the pandemic, when businesses were forced to flock to an online business model, the company saw incredible subscription growth, which has since stagnated somewhat.
This makes sense. The bar was raised to astronomical levels, and many in the market thought this growth rate could be sustained for a lot longer than it was. Now, with the company seeing its growth rate stabilize, and its market share numbers hold steady around 30% in the e-commerce space, this is a company that’s much easier to value.
For those looking for long-term secular trends, I think Shopify remains a company worth considering. Yes, pandemic tailwinds are gone. But the company’s cutting-edge technology enables merchants to design, manage, market, and sell their products and services effectively. That’s something which will hold value over the long term, and will generate sticky subscription revenues worth considering.
Impressive financials bode well for long-term investors
Shopify reported $1.7 billion in revenue in the second quarter of 2023, an increase of 31% over the past year. That’s an impressive growth rate, and while it’s well off the triple-digit levels investors may have grown accustomed to five years ago, it’s still a growth rate that beats most large-cap stocks in Canada and elsewhere for that matter.
As the company’s growth rate normalizes, so to will the company’s valuation. At 15 times sales and 76 times earnings, SHOP stock certainly isn’t cheap. However, this multiple is still much lower than what investors were forced to pay during the company’s sky-high growth days.
Notably, Shopify also produced a gross profit of $901 million in the third quarter of 2023, 36% higher than the financial year 2022. It has also reported enhancement in the growth margin to 52%, making it an ideal investment option for investors seeking to invest in high-return stocks. In addition, to enhance profitability, Shopify sold off its logistics division to Flexport to focus on its area of expertise and boost profitability.
Still impressive growth opportunities abroad
Being one of the established Canadian tech companies, Shopify is well-known in the North American market. However, the company has ample opportunities to grow that are yet to be explored. Shopify’s retail sales penetration year over year is 15% in North America, and analysts expect the numbers to grow in the coming years. In terms of the offline market, Shopify’s numbers are also increasing as the company has taken over 2% of retail sales in North America and 0.5% globally.
In addition, as the bond yields decrease, Canadian investors will gain more confidence by taking more risk and diversifying their investment options towards stocks to gain higher returns. Moreover, the business is also expected to flourish as the interest rate is lowered.
Overall, investing in Shopify remains a compelling long-term investment for those seeking relative outperformance in the world of tech stocks. I’ll be keeping a close eye on how Shopify’s growth rates change over time. But for now, this is a company that looks to be comfortably able to grow into its current valuation.