For investors looking for a top growth stock on the TSX, Shopify (TSX: SHOP) remains a top option to consider, for good reason.
The e-commerce platform provider has enabled a significant amount of the growth we’ve seen in this sector since the pandemic began. We’re seeing the company’s growth rate normalize, and expectations have come down considerably over the past four years or so. But overall, Shopify’s growth trajectory has remained strong, and this is a stock that’s making a move in the right direction (at least over the past year) as the chart above shows.
Moving forward, the question many investors are asking is whether Shopify is still a buying opportunity at these levels, or if the market has priced in about as much growth as is likely in the years to come.
Let’s dive in.
Source: Getty Images
Solid growth potential
For investors with a relatively long investing time horizon, looking at the underlying catalysts supporting a given stock or industry is important. In the case of Shopify and its core e-commerce clientele the company serves, there are strong secular growth catalysts underpinning the company’s fundamentals. It’s these growth drivers that I think are very important for investors to focus on over time.
Shopify has one of the most robust cloud-based e-commerce platforms, operating in a number of high-margin verticals in the company’s pursuit of providing the one-stop experience most retailers are after. The company’s product portfolio continues to evolve, and Shopify has done a good job of integrating AI-enabled functionality and features, which are catching on with its clientele.
It may be too early to tell what kind of operating leverage Shopify has in this regard. But given the size of the company’s ecosystem and Shopify’s essential status with respect to how the economy functions, this is a stock with a very sizable moat I think is worth considering.
Financial performance
On the financial front, Shopify has continued to see relatively strong growth. In the company’s fourth quarter of 2024, Shopify brought in revenue of $2.8 billion, which was more than 31% higher on a year-over-year basis. That strong growth has led to a forward (5-year) PEG ratio of just 1.1 for the e-commerce giant, which is very reasonable. In my view, this is a stock that the market sees as likely growing into its valuation. Until and if Shopify’s growth slows considerably from these levels, that’s a solid base case I’m relying on as my rationale for owning this name here.
Importantly, Shopify is also producing very strong earnings growth, with Shopify’s net income doubling this past quarter (going from $0.52 to $0.99) on the back of solid operating performance and improved efficiencies.
The verdict
The bottom line is that if Shopify can continue to improve its operating metrics and see outsized earnings growth, there’s no reason why this stock can’t trade materially higher from here. For long-term growth investors, Shopify does look like a solid option at its current valuation relative to its growth potential.
Again, I think investing in Shopify is really a decision that should be made with a timeframe in mind. This is a company that’s seen significant volatility in the past (with most of its move being to the upside, but big drawdowns as well over certain periods). Thus, for those with near-term capital needs and those who value capital preservation above all else, this may not be the stock for you.
