Shopify (TSX:SHOP) is one of the largest e-commerce platforms in the world and one of the best investment options for Canadian investors looking for blue-chip growth stocks. After dipping from more than $200 to below $40 per share in 2022, shares of Shopify have continued on an upward trajectory. Now trading well above $100 per share, Shopify has made considerable gains off of its lows. That said, this top e-commerce juggernaut remains roughly 50% below its all-time high set in late-2021
Let’s dive into why Shopify’s recent momentum may certainly be worth buying into.
A long-term business model with considerable room for growth
Shopify’s core business revolves around growing the small and medium-sized business (SMB) niche in the e-commerce world. Noted as a place dominated by giants such as Amazon (NASDAQ:AMZN), Shopify has aimed to democratize this space, allowing SMBs to set up their own online shops and refrain from paying sky-high fees to aggregators such as Amazon for the same services.
The company’s merchant solutions and subscription solutions business lines have been performing well, with SMBs continuing to gravitate toward a home-grown model. The idea is simple: by allowing merchants to design, manage, market and sell their services and products more effectively and efficiently, Shopify can earn consistent and steady profits. This model benefits long-term shareholders looking for outsized returns on invested capital, which Shopify has provided for years.
With the pandemic-driven comps now in the rear-view mirror, Shopify has seen its financials reflect this reality.
Strong financial performance boosting Shopify stock
Speaking of Shopify’s fundamental story, 2023’s results shed a lot of light on the comeback this e-commerce platform provider has made since its 2022 dip.
Shopify reported annual revenue of $7.1 billion in 2023, up 26% on a year-over-year basis. Merchant solutions drove a greater chunk of this rise, surging 27%, with subscriptions solutions growing 23%. But on most measures, Shopify delivered a nice surprise, propelling its stock price higher after most quarterly prints.
Importantly, Shopify also outperformed on the bottom line. The company brought in gross profit of $3.5 billion on its $7.1 billion in revenue (representing very nice margins). Notably, Shopify’s profit grew by an even more impressive 28% year over year, signalling this is a growth stock that’s seeing margin expansion right now.
A growth stock with long-term potential
Backward-looking results are one thing. But what most investors who may be considering Shopify stock are concerned with is where this stock is headed.
We’re all trying to skate where the puck is going. And in that respect, Shopify’s forward outlook remains strong.
With 15% online retail penetration in North America, Shopify has solidified its presence in the e-commerce world. However, the company only accounts for 2% of retail sales in North America and 0.5% of retail sales globally. So, there’s a massive total addressable market that’s left for the company to chase.
As Shopify continues to grow its market share, and do so profitably, I think investors will be well-rewarded from holding onto this gem long term. The company plans to increase its revenue 10% each and every year to 2028. Any sort of outperformance on this front should lead to strong capital appreciation for existing investors.
