Shopify (TSX:SHOP) is one of the largest e-commerce platform providers in the world and one of the top growth stocks in the Toronto Stock Exchange. Since its lows in 2022, the company has seen remarkable growth, more than tripling to current levels.
After such a rise, some investors may certainly be wary of the company’s upside potential. That said, I think more upside could be in store for investors looking for a top growth stock to buy to ride this wave of momentum higher.
Here’s more on why I think Shopify is a top Canadian growth play worth considering right now.
Strong and growing core business
Shopify generates its cash flow and earnings via transaction fees charged for businesses using its platform to conduct business as well as via software-as-a-service revenue for other services provided by the company. These cash flows have proven to be resilient and stable, allowing growth investors a clear line of sight to future profitability based on market share expansion metrics and other forecasted measures.
Of course, the pandemic-related boom was a one-off, and Shopify stock did decline following that period of time as the comps generated growth hurdles that were impossible to overcome. The thing is, Shopify’s growth has remained steady (when zooming out), and the secular tailwinds supporting its business (more small- and medium-sized businesses taking on online stores) continue in earnest.
Shopify’s innovative technology allows merchants to design, manage, market and sell their products and services more efficiently. That’s a business model that is likely to last through multiple market cycles and is the key reason this is a growth stock I continue to focus on.
Strong results
A strong forward-looking growth picture is one thing, but investors want to see the money now. In terms of Shopify’s recent results, it’s been bringing home the bacon, with year-over-year revenue growth of 26% in 2023 and bottom-line growth of 28%. This indicates continued margin expansion — something investors continue to want to see from Shopify.
Shopify’s share price has reacted positively to most of its recent quarterly reports for this reason. The company is seeing better growth from its higher-margin subscription business, and the company has a number of verticals to expand into to grow its overall revenue and earnings base further.
Why Shopify remains a buy
Shopify’s established nature as a key provider of key infrastructure for e-commerce retailers in North America is well-known. However, the company also has ample opportunity to continue expanding its presence globally, with a number of key markets yet to be explored. While the company has a 15% penetration rate in terms of e-commerce in North America, its penetration rate globally is at 2%, with 0.5% of all retail sales taking place over its platform.
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So, as the pie expands and Shopify continues to gobble up more market share, there’s a strong growth picture ahead. With fantastic fundamentals and increasing profitability, investors should expect continued upside from here. At least, I do.
