When thinking about the market-beating potential of any particular growth stock, it’s important to consider a number of factors. Whether it’s a given company’s past growth trajectory, its forward outlook, or its funding costs and balance sheet strength, there are plenty of factors that go into considering whether a company like Shopify (TSX:SHOP) is worth considering as a growth stock with market-beating potential.
Now, I’ve long remained bullish on Shopify for a wide range of reasons. To a large degree, this longer-term thesis still appears to hold, though Shopify stock is trading well off its post-pandemic peak. The company’s status as a premier e-commerce platform provider lends itself well to long-term investors betting on the strength of the secular tailwinds underpinning this space. As transaction volumes grow across the board, Shopify’s dominant market share and impressive verticals promise strong top- and bottom-line revenue growth over time.
Here’s more on why I think Shopify could in fact be a market-beating e-commerce stock over the long term.
How can Shopify become a market-beating growth stock?
As a top e-commerce brand, Shopify operates in more than 175 countries, offering customized, secure, reliable and speedy services to online customers through its platform. Shopify continues to execute on its extensive plan to enhance its global presence. The company plans to increase its revenue at a low-to-mid-20s percentage rate on a year-over-year basis. In addition, the company aims for a 50 basis points higher gross margin than the second quarter.
Shopify’s status as a top player in the global e-commerce industry with diversified revenue streams and innovative business techniques positions the company to continue to be a top competitor in this high-growth space over the long term.
Is SHOP stock a buy right now?
In my view, Shopify’s decline from its post-pandemic peak is one that certainly makes sense with respect to its incredibly high comps coming out of what was a truly generational surge in e-commerce usage. I don’t think we’re due for any sort of similar surge moving forward. Rather, I think Shopify’s future growth trajectory is likely to be much more orderly and follow longer-term trends in this regard.
In recent quarters, Shopify has shown robust growth, with greater than 20% GMV (gross merchandise volume) and revenue growth supporting free cash flow growth of 25% year-over-year. So long as the company’s profitability and cash flow growth trajectories remain intact, this is a stock I think long-term investors can dollar cost average into over time with a reasonable amount of confidence the investment will work out in a decade or two.
