In a market in which most top growth stocks are continuing to outperform, I’d argue that most investors who threw darts at a board a decade ago are likely sitting pretty. Indeed, there have been some collapses among top growth stocks. But for the most part, the best operators in their respective sectors continue to post solid gains.
We’ll have to see how 2026 ultimately shapes up. However, I’m of the view that companies like Shopify (TSX:SHOP) with some of the best growth profiles in the high-growth e-commerce sector could continue to outperform.
Here’s why I think investors looking to put the next $5,000 to work in a TFSA or brokerage account may want to consider Shopify as the way to do so.
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Solid growth at a reasonable price
Few Canadian tech companies have the kind of scale and earnings growth potential as Shopify. However, given the fact that Shopify has seen its price-earnings ratio actually decline in recent years as its revenue growth has remained in the mid-30% range is notable. This past quarter, the company’s revenue surged 32% on a year-over-year basis to a record high, driven by gross merchandize value (GMV), which also surged by that same percentage.
That’s impressive growth, and much higher than the approximately 10% growth we saw in the e-commerce space overall. What’s perhaps most notable about Shopify’s recent results is that the company’s solutions revenue (its services side of the business) actually grew faster at a 38% clip. Importantly, this sector also represents around three-quarters of the company’s total revenue, cementing Shopify’s status as a top subscription or software-as-a-service play in the market.
Earnings growth inflecting higher
Top-line revenue growth is great. However, I’d argue that in this climate, investors want to ultimately see a return on their invested capital.
On that front, Shopify is a behemoth, seeing earnings growth continue to churn along in the mid-20% range. I’d like to see this earnings growth rate move higher, though we have seen even more improvement in cash flow in recent quarters. And since cash flow is how stocks are supposed to be fundamentally valued, that’s a good thing.
Operating margins have expanded, with operating income up more than 50% on a year-over-year basis during the first half of last year. I’d like to see a continued acceleration this year, as companies continue to ramp up their online presence.
Long-term bet on a sector with big growth
I think e-commerce could be the place to invest over the coming decades, at least for those looking to capture value from a strong consumer. Consumer strength has become bifurcated, and e-commerce sales are really starting to outstrip bricks-and-mortar sales for the first time in a long time.
So long as this is the case, Shopify will remain my go-to choice as a way to play long-term growth with a top Canadian gem.
