There’s no question that one of the most exciting and intriguing growth stocks that Canadian investors can buy for the long haul is Shopify (TSX:SHOP), the dominant e-commerce tech stock.
Since Shopify went public back in 2015, the share price has grown by over 2,600% or a compound annual growth rate (CAGR) of an unbelievable 50%. And that’s even after the significant decline that Shopify stock saw in its share price that started in late 2021. Prior to that, the stock had gained almost 6,700% since it went public.
This isn’t necessarily surprising. Shopify is an incredible stock that has helped revolutionize the e-commerce and retail sector and is now one of the most dominant companies in the space.
However, although Shopify is an incredible stock with plenty of growth potential going forward, there are some drawbacks to buying the stock today.
First off, as we saw in late 2021 and throughout most of 2022, Shopify stock can be considerably volatile. Because it’s a high-growth stock that trades with a premium, and because it operates in the tech sector, it’s a higher-risk stock. Should the market correct again or the economy slip into a recession, Shopify could see another significant dip in its share price.
Furthermore, Shopify’s business will be directly impacted by a reduction in discretionary spending should we see a recession. So, there’s certainly a tonne of risk investing in Shopify today.
Plus, in addition to the uncertainty in today’s environment, Shopify also has a market cap of more than $110 billion. Although it still does have plenty of potential to continue growing its business over the long term, particularly when the economy has recovered, the larger it gets in size, the slower its growth will inevitably become.
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One top Canadian tech stock to buy before Shopify
Although Shopify is an impressive company and does have plenty of potential over the long haul, in the near term, it does have a few drawbacks. That’s why the one Canadian tech stock that I’d buy before Shopify is WELL Health Technologies (TSX:WELL).
First off, because WELL Health Technologies is a tech stock, it has plenty of impressive growth potential. However, it also operates in the healthcare sector, making it much more defensive and, therefore, more reliable in the short term than Shopify.
Although both could see a dip in their share price should the market see another correction, WELL should have much less downside.
In addition, WELL is a much smaller business with a market cap of just $1.1 billion, around 100 times smaller than Shopify. This gives it much more potential to grow substantially over the long haul.
That’s not all, though. WELL has already proven quarter after quarter what an impressive business it can be. It’s constantly making value accretive acquisitions. And when it does acquire a company, it looks for businesses with plenty of organic growth potential, which is what’s led to its consistent outperformance of analyst expectations.
Despite this performance, though, WELL remains remarkably cheap — another reason why it’s a top Canadian tech stock that I’d buy before Shopify.
WELL Health is cheaper than Shopify
Right now, WELL trades at a forward price-to-sales (P/S) ratio of just 1.4 times, below its three-year average of 4.9 times. Meanwhile, Shopify trades at a forward P/S ratio of 12.1 times, below its three-year average of 23.2 times.
Although WELL is clearly much cheaper than Shopify on a P/S basis, it’s also cheaper on a historical basis, trading more than 70% below its three-year average vs. Shopify stock, which is trading just 48% below its three-year average.
Even analysts believe WELL has better value. Right now, Shopify actually trades just above its average analyst target price. Meanwhile, WELL trades nearly 50% below its average analyst target price.
Therefore, while Shopify is still an unbelievable Canadian tech stock with plenty of long-term growth potential, WELL Health Technologies looks like an even better investment in this environment.
