Formerly the quintessential “millionaire-maker” stock, Shopify (TSX: SHOP) trades on the Toronto Stock Exchange as one of the most traded stocks in the market. It has seen incredible growth, with SHOP stock rising an impressive 3,400% since its IPO, and at its peak, it soared an incredible 6,031%. To put that into perspective, your $10,000 initial investment in Shopify might have grown to more than $600,000. Those who have held since its IPO and put $30,000 into the stock are currently millionaires.
Now, this stock is down considerably from its peak. And despite a recent pullback, it’s still a highly valued company, making these sorts of returns unlikely moving forward. But for those with enough fresh capital to put to work, it does appear Shopify can be a millionaire-maker stock over the long term.
Let’s dive into why.
Understanding Shopify
Shopify provides a robust e-commerce platform designed mostly for small- and medium-sized enterprises. Its subscription solutions, which are split into two sectors and accounted for 43% of sales in the fiscal year 2018, allow merchants to perform e-commerce on a variety of platforms, including their websites, physical stores, pop-up shops, kiosks, and even social media sites like Facebook and Amazon. To help with e-commerce operations, its merchant solutions – which accounted for 57% of fiscal 2018 revenue – offer add-on products like Shopify Payments, Shopify Shipping, and Shopify Capital.
As the e-commerce economy grows, Shopify stands poised to capture significant market share and grow its revenue and earnings at a market-beating rate. Those who have bet on the company to do so have been well-rewarded, but it’s clear the size of the total pie and Shopify’s dominance are growing. If the company can rival Amazon in the e-commerce space over the long term (a big ask, I know), it’s entirely possible another growth wave could take this stock much higher over the long term.
Is now the time to buy Shopify?
The pandemic produced quite an incredible boost for Shopify, with the company seeing triple-digit revenue growth and producing consistent profits. The growth bar has been considerably lowered for the company as these pandemic-driven headwinds have waned. Accordingly, the company’s valuation is much more in line with its future growth prospects than it has been in a long time.
At a forward price-earnings ratio of 62 times, Shopify stock looks reasonably valued, given the growth potential the company provides. Shopify’s retail sales penetration rate of 15% in North America is strong, though this number dips to 2% globally. The question is how quickly and aggressively Shopify can gobble up global market share. The company’s potential for exponential growth will likely continue to be driven by innovation and development strategies, including the integration of AI into its platform.
Bottom line
Over the long term, I like Shopify’s positioning in the e-commerce market. This is a sector that simply doesn’t get the love it deserves right now. Given where interest rates are and the dynamics in the market, that makes sense.
But if we do see interest rates come down and a resurgence of growth stocks in the market, Shopify stands poised to capture big gains for investors. Whether that means it’ll make any individual investor a millionaire depends on the amount invested and the price paid. But right now seems like a decent time to get into this high-growth player, in my view.
