Shopify Stock – This High-Growth Stock Has Huge Promise

ByDylan Callaghan Published On:

Shopify stock has been on a wild ride lately. Over the last few years, it’s realized some mind-boggling highs, large-scale drawdowns, and significant post-pandemic recoveries.

Its recent performance has caught many by surprise, myself included. Growth is slowing, no doubt, but this is still one of the best Canadian stocks in history.

Its platform continues to attract merchants of all sizes, from small businesses to large enterprises. While some might worry about increased competition in the e-commerce sector, I think Shopify’s innovative approach sets it apart.

Key Takeaways

  • Shopify’s recent earnings exceeded expectations, boosting investor confidence
  • The company has significant room for growth in the expanding e-commerce market
  • Current stock valuation may be high, but justified by long-term potential

Q2 Earnings – Much better than expected

I’m impressed with Shopify’s second-quarter results for 2024. The company has shown remarkable growth across key metrics.

Revenue jumped 21% year-over-year, reaching $2.0 billion USD.

Shopify’s cash flow generation looks stellar. Free cash flow hit $333 million, with a margin of 16%. That’s more than double the 6% margin from the same quarter last year. As an investor, I love seeing this kind of improvement in cash generation when the markets are laser focusing on profitability.

Let’s look at some key performance indicators:

• Gross Merchandise Volume (GMV) up 22% to $67.2 billion

• Subscription Solutions revenue increased 27% to $563 million

• Monthly Recurring Revenue (MRR) grew 25% to $169 million

I’m particularly excited about the subscription growth. It shows Shopify is attracting new merchants and successfully raising prices on existing plans. Subscriptions are also a very sticky, more predictable revenue stream.

Gross margins expanded to 51.1%, up from 49.3% last year. This improvement came despite continued growth in the payments business, which typically carries lower margins.

In my view, these results paint a picture of a company firing on all cylinders. Shopify is growing its merchant base, increasing revenue per merchant, and improving profitability all at the same time.

Shopify still has a ton of runway in terms of growth

Shopify’s should have a bright future ahead. The e-commerce market is booming, and Shopify’s right in the thick of it.

By 2025, global e-commerce sales could hit $4.8 trillion. That’s a massive pie, and Shopify’s lined up nicely to grab a bigger piece.

Here’s why I’m bullish:

• Online shopping’s becoming the norm

• More folks are starting online businesses

• International markets are ripe for the picking

Shopify’s not just sitting pretty. They’re constantly innovating and expanding their services. From payment solutions to fulfillment networks, they’re covering all the bases.

I’m especially excited about their push into social commerce. With platforms like TikTok and Instagram becoming shopping hubs, Shopify’s perfectly positioned to capitalize.

Runway is solid, but is valuation reasonable?

Shopify’s valuation is a bit of a head-scratcher for many.

The company’s price-to-earnings ratio is a whopping 80, which might make some investors balk. But let’s not forget, this is a high-growth tech company we’re talking about, which makes trailing price to earnings a relatively useless ratio.

When I look at Shopify’s enterprise value to sales ratio (EV/Sales) of about 13, it starts to become a bit more reasonable. After all, this is one of the lowest multiples the company has traded at since its IPO.

The company’s revenue growth is impressive, with a 20.7% year-over-year increase in the last quarter. For companies that can grow at 20%~ annually, it doesn’t take a lot to “grow” into a higher multiple.

The PEG ratio, which factors in growth, sits at a more palatable 1.12. This suggests that while the stock isn’t cheap, it might not be as overvalued as it first appears when you consider its growth prospects..

So, while the valuation might seem steep at first glance, I think Shopify’s solid growth and improving margins make it worth a look for some investors who can stomach a bit of volatility.

TD enters e-commerce space. Should Shopify holders worry?

In my opinion, Shopify investors can breathe easy for now. TD Bank’s foray into e-commerce is intriguing, but it’s unlikely to shake Shopify’s dominant position anytime soon.

TD’s partnership with BigCommerce is a smart move. They’ve got deep pockets and a massive customer base to tap into. But Shopify’s head start is massive.

Consider this:

  • Shopify’s merchant solutions raked in $1.5 billion last quarter alone
  • They’ve got a global reputation as the go-to for online stores
  • Their ecosystem is vast and well-established

TD Bank’s offering might appeal to some small businesses, especially those already banking with them. But Shopify’s platform is tried, tested, and trusted by merchants worldwide.

I think competition is healthy for the market. It might even push Shopify to innovate further. But toppling the e-commerce giant? That’s a tall order.

Is Shopify stock a buy at this point, or is it too expensive?

The valuations for Shopify are undeniably high right now. But I think there’s a good reason for this. The company’s growth has been nothing short of amazing, and that’s what’s driving the stock price up.

Here’s my take on the current situation:

Pros:

  • Strong revenue growth
  • Expanding market share
  • Innovative product offerings

Cons:

  • High valuations
  • Increased competition
  • Market volatility

I believe Shopify has the potential to keep growing at a rapid pace. They’re constantly adding new features and expanding their reach in the e-commerce world.

But here’s the catch: to justify its current valuation, Shopify needs to maintain this lofty growth rate. That’s no small feat in the fast-changing tech sector.

For investors, this means Shopify is a higher risk, higher reward play. If you’re comfortable with some volatility and believe in the company’s long-term prospects, it might be worth considering.