Of all the growth stocks Canada has to offer, few investors would argue that Shopify (TSX: SHOP) has been the most consequential of the past decade.
Indeed, shares of the e-commerce platform provider have absolutely crushed the returns of the TSX and most broad indices around the world. Despite a dip in 2022 and lagging performance for much of the past three years, this past year Shopify has returned to form.
Let’s dive into why this recent momentum may be poised to continue, and why this recent dip in SHOP stock is one that may be worth stepping into.
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Growth consistency matters a great deal
There are plenty of companies that can maintain sky-high growth rates, for a time. Indeed, it’s a well-known fact that the larger a company gets, the more difficult mathematically it becomes for said company to continue growing at the same rate (or see its growth accelerate).
Shopify is one of those unique companies with a truly scalable business model that has found the ability to see a re-acceleration of its revenue and earnings growth in recent quarters. This past quarter, Shopify’s revenue growth rate breached 31%, with its merchant solutions business (a higher-revenue SaaS business) seeing even higher growth at 38% year-over-year.
Importantly, this growth was high-margin in nature, with the company’s overall gross profit surging nearly 25% to $1.4 billion, as the company’s free cash flow margin remained around the 16% range.
Those are impressive numbers for a company with a market capitalization of $285 billion, and suggests that this is a company which could be undervalued relative to competitors right now.
Why will this growth continue?
In my view, Shopify’s ability to see accelerating growth driven by some unique and promising AI integrations within its core infrastructure stand to propel the company forward into 2026. On top of this, an expanding enterprise client base with new large-scale corporate clients bolstering the company’s typically small to mid-sized clientele could boost profitability in its key services segment.
As the company continues to grow its higher-margin business at a faster rate than its transaction-driven business supported by its core base, I think investors could view this company very differently a year from now. Thus, now seems like a great time to add to this world-class holding near $200 per share.
