Stock Up Sale
Shopify (TSX:SHOP)(NYSE:SHOP) has been one of the most compelling growth stories of the past decade. The company went public in mid-2015 and has since returned an astonishing 4,100% to investors in less than seven years. So, a $1,000 investment in Shopify stock soon after its IPO would be worth approximately $42,000 today.
Despite these market-thumping gains, Shopify stock is also down 40% from all-time highs, allowing you to buy the dip. In recent months, investors were wary about the steep valuations surrounding growth stocks, as well as the threat of higher interest rates going forward. In case interest rates increase, the cost of debt will also move higher, resulting in higher interest expenses and a narrower bottom line.
But every pullback should be viewed as a buying opportunity for the long-term investor.
The bull case for Shopify stock
In Q3 of 2021, Shopify increased sales by 46% year over year to US$1.1 billion. Its gross merchandise volume, which is the total transaction value derived on the Shopify platform, rose by 35% to US$41.8 billion. However, its adjusted net income fell to US$102.8 million in Q3, from US$140.8 million in the year-ago period.
Shopify first reported an adjusted profit in 2020 so investors should not be surprised to see inconsistent growth in earnings. Similar to most other growth stocks, Shopify continues to sacrifice profitability for revenue growth.
A primary reason why I remain bullish on Shopify is its robust platform provides the company with a competitive edge which results in high switching costs and improves customer retention rate. Shopify ended 2020 with 1.7 million merchants, up from just 820,000 at the end of 2018. This number is likely to surpass two million in 2021. A growing merchant base, as well as Shopify’s wide economic moat and an expanding addressable market, make SHOP stock a top bet at current prices.
How can you get exposure to SHOP stock?
You can buy standalone shares of Shopify or even look at gaining exposure to the Canadian tech heavyweight via ETFs or exchange-traded funds. An ETF holds a basket of stocks that provide investors with risk diversification at a low cost. Let’s take a look at three ETFs that have Shopify as part of their portfolio.
TD Global Technology Leaders Index ETF
The TD Global Technology Leaders Index ETF (TSX:TEC) was launched in 2019 and has since gained 96% in less than three years. With almost $2 billion in assets under management, the ETF has a management fee of 0.35%. The ETF gained 25% in 2020 and 47.5% in 2021, and is down 11% from all-time highs. Shopify accounts for just 0.6% of the fund but its largest holdings include giants such as Apple, Microsoft, Amazon, and Tesla.
iShares S&P/TSX Capped Info Tech
The iShares S&P/TSX Capped Info Tech ETF (TSX:XIT) has gained 671% in the last 10 years. The fund is trading 23.5% below all-time highs and provides you targeted exposure to Canadian tech companies. It has a management fee of 0.55% and an expense ratio of 0.61%. Shopify is the second-largest holding of XIT, accounting for 20.11% of the ETF.
iShares S&P/TSX 60 ETF
The iShares S&P/TSX 60 ETF (TSX:XIU) tracks the largest Canadian companies trading on the TSX. After adjusting for dividends, XIU has returned 146% to investors in the last decade, which is much lower than the returns generated by other indexes including the S&P 500.
Shopify is the third-largest holding of XIU, accounting for 6.33% of the fund.
