Investors looking for growth stocks trading on the TSX certainly have quite a few solid options. Among the leading companies in this space that I continue to believe are excellent long-term holdings are Shopify (TSX:SHOP) and Constellation Software (TSX:CSU), for different reasons.
That said, I think it’s worth diving into these two growth stocks and trying to determine which may be the better pick for a specific investor profile. Let’s do just that!
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Shopify
Shopify could be the best-known Canadian tech company. This leading e-commerce platform provider enables businesses to build and manage online stores. Founded in Canada, Shopify has grown into a global powerhouse, serving millions of merchants worldwide. Its business model includes subscription fees, merchant solutions, and payment processing through Shopify Payments.
With the continued rise of online shopping, Shopify remains well-positioned to benefit from the ongoing digital transformation. Shopify has demonstrated impressive revenue growth, with consistent year-over-year increases driven by expanding merchant adoption and higher gross merchandise volume (GMV).
The company is constantly innovating, introducing AI-powered tools, expanding into enterprise solutions with Shopify Plus, and strengthening its fulfillment network. Moreover, Shopify has shown resilience, rebounding from previous market corrections by adjusting costs and focusing on profitability.
However, e-commerce is highly competitive, with Amazon, WooCommerce, and other platforms offering alternatives to Shopify’s services. A slowdown in consumer spending due to economic downturns can impact Shopify’s revenue growth. Accordingly, this is a stock many investors are cautious about, given its current valuation, right now.
Constellation Software
Constellation Software is a global software conglomerate specializing in acquiring and managing vertical market software companies. Unlike Shopify, which relies on a single platform, Constellation Software follows a decentralized acquisition-based strategy, acquiring smaller niche software firms that provide mission-critical services.
Constellation’s growth strategy is centred on acquiring profitable businesses with recurring revenues, ensuring steady cash flow. The company has a history of strong earnings growth, boasting a high return on invested capital and consistent revenue increases.
Furthermore, Constellation’s businesses serve various industries, from healthcare to public utilities, making it less vulnerable to economic downturns. With a disciplined acquisition approach, the company continues to expand internationally, tapping into new markets.
Since its success relies on acquiring companies, poor acquisitions or overpaying for assets could affect future performance. Unlike Shopify, which grows through new customer acquisition, Constellation relies primarily on strategic acquisitions rather than organic user base expansion. Given its steady performance, CSU trades at a premium, making it relatively expensive for new investors.
Final verdict: Which stock is the better buy?
The choice between Shopify and Constellation Software depends on an investor’s risk tolerance and investment goals.
In my view, longer-term investors with a truly elongated time horizon to invest ought to consider a company like Shopify, given its growth potential in the e-commerce sector and its relative market share dominance right now. However, Constellation Software would be my pick for investors looking for more durable mid-term growth catalysts.
