Perhaps the most recognizable name brand in the Canadian tech space, Shopify (TSX: SHOP) continues to be one of the top-performing growth stocks I’m watching closely. As the chart below shows, SHOP’s been on a bumpy ride of late. And while the stock is up on the year, Shopify’s performance has lagged the overall market to a certain degree, making some investors wary of the direction of travel moving forward, for good reason.
The fact is, Shopify’s long-term performance has been outstanding, and is indicative of a company that continues to grow at a pace well above market levels. While growth has slowed from its pre- and pandemic-era triple-digit growth rates, plenty of investors are betting on Shopify’s robust underlying structural growth trends translating into sustained above-average growth over time.
Let’s dive into why Shopify still looks like a solid buying opportunity for those thinking long term.
Robust financials driven by growth
As mentioned, growth is the name of the game when it comes to e-commerce platform provider Shopify. With one of the most well-integrated platforms on the market, Shopify essentially enables businesses of all sizes to set up online stores.
As more and more business shifts online, many analysts expect Shopify to continue to grow at an impressive clip. In the company’s first quarter, Shopify posted strong revenue growth of 27% on a year-over-year basis to $2.4 billion. That amounts to the eighth consecutive quarter of top-line growth above 25%, a key level investors will continue to watch closely.
What’s impressive about this growth is Shopify’s GMV (gross merchandise value) hasn’t increased by the same amount (only 23%). This means that the company’s services business continues to grow faster than its core business, providing even higher margins and better earnings potential over the long term.
With a much more “reasonable” forward price-earnings multiple around 80 times, investors are getting a much better deal investing in Shopify today than they have in the past.
So, is Shopify a solid buy here?
Now, 80 times earnings is still expensive. I’m not going to sugar coat that. And certainly, there are plenty of investors who might balk at such a multiple.
But for long-term investors with a multi-year investing time horizon, this multiple makes sense relative to Shopify’s revenue and earnings growth potential. If the company can maintain its current growth trajectory, its multiple will likely trade right around the current market in two or three years’ time. That’s not a long time for patient investors to wait.
For those looking to invest for retirement and have a holding period of more than five years, Shopify remains one of my top growth picks in this uncertain market right now.
