Investing in growth stocks has been the ideal option for long-term investors for some time. Over the better part of the past two decades, companies with market-beating growth rates have outperformed. As it happens, there are a number of top options on the TSX investors can consider in this regard.
However, for those seeking truly remarkable upside moving forward, Shopify (TSX:SHOP) remains a top growth stock to watch in my books. This is among the largest e-commerce players in the market, continuing to ride secular long-term growth trends higher.
Here’s more on why I think 2024 is an opportune time to get into Shopify.
Solid business case
No matter which direction the economy is headed in the next year or two, finding companies with strong secular trends supporting their core businesses is important. Shopify is one such example of a growth stock that should thrive no matter what environment we’re heading into.
This view is largely due to the company’s software-as-a-service business model. As a leading provider of e-commerce solutions to small- and medium-sized businesses looking to set up online shops, Shopify earns transaction fees for all business conducted on its platform. So, as e-commerce volumes grow globally, Shopify retains strong upside to these secular catalysts.
The company’s profitability has become much more visible, with Shopify having posted a number of quarters of positive earnings. And while the company has since turned negative on its earnings per share (EPS) front, on a forward-looking basis, the company trades at 68 times earnings. That’s not cheap, but it does indicate the market remains bullish on its potential to grow profitably over time.
Results have been mixed but point in the right direction
Aside from the company’s earnings picture, investors looking for growth do have a lot to cheer with Shopify’s recent results. From a revenue perspective, the company brought in 25% revenue growth during the last quarter of 2023.
This strong revenue growth was driven by a 31% rise in the company’s subscription services revenue. Accordingly, for those looking at companies with high operating leverage and the ability to produce growing earnings and cash flows over time, Shopify remains a top option to consider in this market.
Analysts expect that Shopify can continue to take more share in what will be an $8.1 trillion global online commerce industry over time. Shopify’s prominent presence in this market, and its ability to attract merchants (positive churn metrics) portend well for those taking a long-term view of this stock.
Why buy Shopify in 2024?
Of course, the question is why now may be a good time to buy this stock. After all, there are plenty of other pure-play e-commerce options on the market.
Well, I think Shopify’s established nature as an infrastructure provider for a long-term structural growth area of the market is noteworthy. Additionally, the company has a number of high-margin verticals to explore, which should boost its fundamentals in the long term.
As long as Shopify can continue to innovate and expand into new markets, the company’s outlook remains strong. As far as top TSX growth stocks are concerned, Shopify remains my top pick for these reasons.
