Investing in growth stocks can be a strategic move to enhance your portfolio, especially when focusing on companies with robust financial performance and promising future prospects. One such company listed on the Toronto Stock Exchange (TSX) is Shopify (TSX:SHOP), a leading e-commerce platform that has demonstrated significant growth and resilience in the dynamic digital commerce landscape.
Here’s why I think Shopify could indeed be the smartest growth stock investors can buy with a $5,000 initial outlay right now.
Strong financial performance should continue
Among the e-commerce giants I think have the most upside to continue posting stronger growth rates through 2025 is Shopify. That’s partly due to the company’s underlying business model, which allows users of its platform to set up online shops. With the global e-commerce landscape likely to continue to grow at an above-market rate, this is an area of the economy I think has been increasingly overlooked (thanks to AI and other high-powered trends).
Shopify’s most recent results highlight the company’s focus on improving its operational efficiency. The e-commerce giant recorded sales of $2.162 billion in the third quarter of 2024, up 26% from $1.714 billion in the same quarter the year before. In accordance with this expansion, gross profit increased from $901 million to $1.118 billion, representing an improvement in the gross margin from 52.6% to 51.7%.
Notably, Shopify’s operating income increased significantly from $122 million in the third quarter (Q3) of 2023 to $283 million, indicating improved operational leverage. Significant growth was also seen in free cash flow, which increased from $276 million to $421 million, yielding a free cash flow margin of 19%, up from 16% the previous year.
Growth prospects remain robust
Shopify’s growth trajectory seems to be on an optimistic path going forward. Analysts predict that sales will expand at a compound annual growth rate (CAGR) of 22% between 2024 and 2026, while generally accepted accounting principles (GAAP) earnings per share (EPS) will rise from $0.48 in 2024 to $1.10 in 2026.
Shopify’s strategic goals, such as growing its enterprise clientele, lend credence to this positive view. By drawing in bigger companies like Reebok, Overstock, and Barnes & Noble, Shopify hopes to increase profitability and establish more reliable income sources.
Furthermore, by simplifying operations, marketing, sales, and customer service, Shopify’s incorporation of artificial intelligence (AI) into its platform through technologies like Shopify Magic is expected to improve merchant experiences. The company is now at the forefront of innovation in the e-commerce industry due to this technical improvement, which could lead to more growth and market share expansion.
Why now is the time to consider Shopify
Strong market trust in Shopify’s business strategy and development potential is reflected in the company’s stock price, which is now trading at about $150 per share once again. Indeed, I think this is a stock that could be due for new all-time highs, if market expectations around growth have been truly re-set. Following the pandemic, the company faced sky-high comps, which are no longer in play. Moving forward, I think a series of earnings beats and higher-than-expected growth could take this stock much higher over time.
A $5,000 investment in Shopify offers the chance to benefit from the company’s ongoing expansion and strategic goals. But it is crucial to take possible market swings into account. According to certain projections, there may be a stock correction in early 2025, which would present investors with a better opportunity to enter the market. However, it is anticipated that the general economic momentum will pick back up in the second half of the year due to factors including lower interest rates and more consumer expenditure.
