In the bustling world of Canadian tech stocks, Shopify (TSX:SHOP) often steals the spotlight. With its platform empowering businesses worldwide, Shopify has become synonymous with e-commerce success. However, investors might want to cast their nets wider and consider another gem in the Canadian tech landscape. The tech stock to consider instead is OpenText (TSX:OTEX).
Shopify stock
Shopify’s recent performance has been a mixed bag. In the fourth quarter of 2024, the company reported a 31% increase in revenue, reaching $2.81 billion. Earnings per share (EPS) rose by 29% to $0.44, surpassing analysts’ expectations. Gross merchandise volume also saw a healthy uptick, growing 24% to $94.4 billion. Despite these positive figures, Shopify’s stock experienced volatility, initially dipping but later closing up by 3.1% to $123.59 after the earnings call.
Looking ahead, Shopify projects a mid-20s percentage revenue growth for the first quarter of 2025. However, the tech stock anticipates lower-than-expected free cash flow margins, raising some concerns among investors. This cautious outlook, coupled with increased investments in artificial intelligence (AI)-based tools like Shopify Magic and the AI assistant Sidekick, has led to apprehensions about profit margins.
OpenText stock
On the other side of the spectrum lies OpenText, a tech stock that might not have the same brand recognition as Shopify but boasts a robust financial track record. In the second quarter of fiscal year 2025, OpenText reported total revenues of $1.335 billion. While this marked a 13.1% decrease year over year, it’s essential to note that this decline was influenced by the divestiture of certain assets.
Notably, OpenText’s cloud revenues, a key growth area, increased by 2.7% to $462 million during the same quarter. The tech stock also achieved a net income of $230 million, a significant jump from $38 million in the previous year. This translated to diluted earnings per share of $0.87, up from $0.14, reflecting a substantial improvement in profitability.
OpenText’s commitment to returning value to shareholders is evident through its dividend program. The tech stock declared a quarterly cash dividend of $0.2625 per common share recently for investors. This consistent dividend payout underscores OpenText’s stable financial position and dedication to shareholder returns.
More to come
When comparing valuations, OpenText appears more attractively priced. With a trailing price-to-earnings (P/E) ratio of 10.40, it offers a more affordable entry point for investors. In contrast, Shopify’s trailing P/E ratio stands at 66.06, indicating a higher valuation. Moreover, OpenText’s forward P/E ratio is 7.42, suggesting that the market expects earnings growth in the coming year. Shopify’s forward P/E ratio is higher at 91.43, reflecting expectations of continued growth but at a steeper price.
In terms of growth potential, OpenText is not resting on its laurels. The tech stock continues to invest in its cloud services and has achieved 16 consecutive quarters of cloud organic growth. This focus on recurring revenue streams positions OpenText well for future expansion.
Bottom line
So, while Shopify remains a dominant player in the e-commerce space, its higher valuation and cautious profit outlook may prompt investors to explore alternatives. OpenText, with its solid financials, attractive valuation, and commitment to shareholder returns, presents a compelling case for those seeking a cheaper tech stock with promising growth potential.
