Warren Buffett said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” If you cannot see the future of a company in the long term, it is not worth investing. After all, the stock price is the expectation of the investor in the future earnings potential of the company.
How to look at a stock’s 10-year future
When you look at a business, do you think it will remain relevant or become more relevant as the economy grows and technology improves? If the answer is the latter one, that is the stock which can make you richer. If you can see the company’s business, revenue and earnings growing, its stock price will grow. Short-term headwinds may slow the growth in a few years, but the recovery that follows will make up for the slowdown, creating an average return.
We can better understand this averaging with the below stock that has the potential to grow its business over the next 10 years.
Shopify stock
Shopify (TSX:SHOP) has proven its mettle in e-commerce, a trend that is here to stay. Its business model – to help retailers build their digital store – makes it stand out from Amazon and thrive in competition. Unless a technological disruption changes the e-commerce competitive landscape and makes Shopify outdated, the company will continue to thrive in the coming 10 years.
Indeed, you cannot forecast the future. However, you can see Shopify thriving in the 5G space, where artificial intelligence (AI) at the edge would make the digital world more immersive and Shopify relevant as every brand would need a digital presence to remain in the business.
In an earnings call, Shopify CEO Tobi Lutke jokingly said, “The ideal way for us to do the Shopify Fulfillment Network is to employ teleportation.” He added, “Like if we can figure out the physics related to that and just make things appear on a desk right when you want them, that would be awesome. This is the starting point in the memo I wrote for SFN and then we worked backwards.”
While joking, it shows how the management thinks and wants to stay ahead of the technology curve, giving you a reason to stay invested.
Looking at Shopify’s next 10 years revenue growth
Now for the forecasting. E-commerce is a turnover-based business. Hence, we will look at sales. Shopify’s revenue grew at an average rate of 100% (2013–2016), then its average halved to 50% (2017-2021), and now it is 25%.
| Years | Revenue Growth | Forecast | Revenue Growth | Sales Per Share |
| 2013 | 112% | 2024 | 25% | $6.39 |
| 2014 | 109% | 2025 | 25% | $7.98 |
| 2015 | 95% | 2026 | 25% | $9.98 |
| 2016 | 90% | 2027 | 20.00% | $11.18 |
| 2017 | 73% | 2028 | 20.00% | $12.52 |
| 2018 | 59% | 2029 | 20.00% | $14.02 |
| 2019 | 47% | 2030 | 20.00% | $15.70 |
| 2020 | 86% | 2031 | 20.00% | $17.59 |
| 2021 | 57% | 2032 | 15.00% | $20.23 |
| 2022 | 21% | 2033 | 15.00% | $23.26 |
| 2023 | 26% |
Assuming the e-commerce momentum picks up and Shopify’s revenue grows 25% till 2026, then slows to 20% (2027–2031) and 15% (2032–2033). Its revenue per share could grow from $5.11 in 2023 to $23.26 by 2033, with outstanding shares remaining unchanged. At the current price-to-sale ratio of 10.5, Shopify’s stock price should be $232 ($23.26 x 10.48) 10 years from now.
Its stock price (after considering the stock split) peaked at $214 in the 2021 tech boom when analysts said that the market has priced in the next 10 years of growth of Shopify. It is just a crude example of the average forecast. A technology breakthrough or accelerated share buybacks could accelerate growth.
Other growth stocks to consider
Descartes Systems is another stock that could grow at an average annual rate of 15 to 20% over the next 10 years. The supply chain management service provider is tapping the e-commerce opportunity. From global trade to last-mile delivery, Descartes solutions will only keep getting sticky, increasing its profit margins.
