Among the top Canadian tech stocks, Shopify (TSX:SHOP) and Constellation Software (TSX:CSU) are certainly two top growth stocks long-term investors have been well-compensated for owning over almost any time frame. A look at the two companies’ stock charts below (and zooming out to an all-time view) can paint a rather impressive picture of what investing early in fast-growing companies can do for a portfolio.
Of course, whether this growth continues over the long term is an entirely different discussion. Let’s dive into the growth prospects for the following two companies and compare and contrast them to see which is the better option right now.
Shopify
Shopify is one of the most valuable publicly traded Canadian entities, with a market capitalization of more than $137 billion. It is an e-commerce company providing an all-inclusive online platform from which millions of businesses sell their products and services.
The company has grown spectacularly over the past years with its enormous size compared to larger companies. In the second quarter of 2024, Shopify recorded revenue and gross profits, which surged 21% and 25%, respectively, and free cash flow growth of 243.3% year over year. The main growth drivers for the current performance are global expansion, POS (point of sale), and enterprise solutions.
At the same time, Shopify estimates it has penetrated a mere fraction of its total addressable market. Management estimates that the company’s total addressable market opportunity is in the ballpark of $849 billion, and it has penetrated just 2% of its opportunity in the geographical areas it serves.
In addition, Shopify’s shares are trading up by around 56% over the trailing 12-month period. If you have a multiyear hold horizon, you can benefit from the company’s growth trajectory over a much lengthier time frame. Moreover, Shopify Plus has delivered 34% more recurring income in a month during the second quarter of FY2025. Shopify has racked up 114 enterprise deals within its last 10 earnings reports.
Constellation Software
Constellation Software specializes in selling software and services to a niche group of companies. The company develops, markets, acquires industry-specific software and provides mission-critical services to customers. Impressively, this software giant currently boasts more than 125,000 clients in more than 100 countries and encompasses a broad portfolio of software businesses.
From valued acquisitions, Constellation Software has shown impressive financial results year after year and continues to do so. The company recently brought in $2.46 billion in revenue, up 21% from the same time last year. Meanwhile, the net income for the second quarter (Q2) of 2024 amounts to $177 million, a 71% increase from Q2 2023.
Constellation has been a more pleasant ride, reporting excellent TSX-beating gains while being exposed to less market risk than most other high-growth plays. The company is the best smart bet on a wide range of smaller Canadian software companies and can replicate that strategy for many years to come. Hence, Constellation is a one-stop shop if you seek a less risky way to play venture capital. This software giant is a great, steady grower and quality tech player in the current landscape.
It has performed outstandingly on the TSX and is certainly not on the verge of losing its lustre. Cautious management, a healthy capacity to grow earnings, and strict acquisition will ensure that this software giant remains one of the valuable picks for long-term investors, even as its valuation continues to drift higher. If you are hunting for a company that innovates and grows, then Constellation is one to keep in your portfolio.
Bottom line
Overall, Shopify and Constellation Software are strong contenders in the tech sector, each offering unique advantages. Shopify presents high growth potential in the e-commerce space but is volatile. Constellation Software provides stability and consistent returns through its acquisition model. Shopify may be appealing for rapid growth and innovation, but Constellation Software is likely the better long-term choice if you want steady, reliable performance.
