One of the largest e-commerce platforms in the world, Shopify (TSX:SHOP), became a beaten-down stock that many investors wanted to avoid in 2022. As of last year, the narrative has shifted, with Shopify’s valuation more than doubling off of lows, and momentum continuing into this year. However, many investors have this question of whether the momentum will continue in the upcoming years or fall just like before.
Let’s dive into whether Shopify could have what it takes to outpace the so-called “Magnificent Seven” stocks and provide the kind of returns many investors expect moving forward.
What to know about Shopify
Shopify’s status as the top Canadian growth stock in the market is driven by its core business model. A leading e-commerce platform provider, Shopify enables small- and medium-sized businesses to open up online businesses. This has levelled the playing field for merchants, allowing them to design, manage, market, and sell their products and services efficiently.
In addition, Shopify’s platform allows various business to process transactions effectively and enables better product management, inventory management, order and payment processing and analytics tracking. Shopify controls more than 30% share in the e-commerce industry, outperforming other popular competitors.
Strong results paint a rosy picture
Shopify’s recent results point to a beaten-down stock that’s clearly kicking things back into gear. The company’s total revenue grew 26% year over year to $7.1 billion. That’s the kind of growth investors have expected and should continue to drive interest in this stock so long as this growth rate can be maintained (or accelerated).
The company’s total revenue growth was driven by subscription growth (23% year over year) and drove the company’s earnings to a whopping $3.5 billion, a stark increase from the $2.8 billion reported a year prior.
Thus, Shopify is clearly growing in a profitable fashion. The company’s stock now trades at a high price-to-earnings multiple of more than 700 times, but it’s clear the market believes this earnings growth can continue for some time. On a forward-looking basis, Shopify certainly looks a lot cheaper.
There’s more growth where that came from
An established Canadian tech giant, Shopify has a number of avenues to explore for growth. In North America, the company’s retail sales penetration rate is 15%, and analysts expect this number to grow over time. Moreover, in the offline market, the numbers are increasing as well. These trends bode well if the company is able to continue expanding its presence globally.
Overall, Shopify’s slice of its overall total addressable market remains small. As this company garners more market share, investors expect Shopify’s top- and bottom-line metrics to improve over time.
Bottom line
Shopify remains a top e-commerce stock investors may want to consider due to its long-term growth runway and untapped global market share potential. I think this beaten-down stock (still roughly 50% below all-time highs) looks attractive at current levels. Thus, those thinking long term may want to consider adding this growth stock right now.
