One of the biggest e-commerce stocks on the TSX, Shopify (TSX:SHOP) remains a top growth stock many investors are focused on. That’s partly because the company’s growth rate has re-accelerated of late, while its post-pandemic comps are now a thing of the past.
The question moving forward is whether Shopify remains a growth stock investors still want to put fresh capital in, or if this is a company that’s best avoided – particularly if a recession is ahead.
Let’s dive in.
If we do get a recession, Shopify could see downside
There are certainly risks with investing in a software-as-a-service company like Shopify right now. If you’re one of the millions of investors that’s worried about an impending recession (particularly as the yield curve steepens), this is a stock that could see significant downside.
Earning the majority of its revenue via transaction fees on its platform, Shopify’s growth rate is closely tied to e-commerce growth around the world. With a business that extends into 175 countries, there is some diversification there. And lower interest rates should help the company from a valuation standpoint. But any sort of protracted broad decline in e-commerce volumes is a risk to be considered.
Growth has been strong thus far
On the other side of the coin, Shopify’s recent year-over-year growth rate in Q1 has impressed many in the market. While SHOP stock has seen some volatility of late, so long as these growth metrics remain in place, there’s a solid case for upside from here.
The company reported 29% year-over-year revenue growth this past quarter, adjusted for the sale of its logistics business. This was driven by gross merchandise value (GMV) growth of 23% globally, and merchant solutions revenue growth of 20%.
If these numbers persist, there’s a strong case to be made that owning Shopify makes sense here.
So, is it a buy?
It’s my view that Shopify likely isn’t a stock every investor should own. This company is certainly cyclically sensitive, and there are risks tied to a potential recession to take into account.
On the other hand, the company has strong secular growth tailwinds that are hard to ignore. So, for those looking to load up a TFSA with a growth stock to buy, dollar cost averaging into this name may be the best course of action from here.
