It’s been a rather wild year for investors in Shopify (TSX:SHOP). Shares of SHOP stock surged to more than $122 per share in early February before giving up roughly one-third of this move, now trading at approximately $83 per share at the time of writing.
Much of this previous surge was warranted, in my view. And although the macro picture has changed quite a bit since this surge (interest rate cuts haven’t materialized as many were hoping), they’re starting now. Canada’s two recent cuts do pave the way for other central banks around the world to follow suit. Indeed, these moves should disproportionately positively affect growth stocks such as Shopify.
But there are a myriad of other factors to consider when it comes to deciding whether Shopify is a stock that’s worth putting in any portfolio. Here are three reasons I think this stock remains a buy right now.
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Long-term secular growth catalysts remain strong
One of the key driving factors of Shopify’s previous move was interest in future potential growth rates of e-commerce more broadly. As an e-commerce platform provider for small- and medium-sized businesses, the more businesses that sign up for online shops, and the more consumers that place orders on said online stores, the better Shopify does. That’s a function of the company’s business model, which takes a slice of transaction fees above a certain amount.
For those bullish on the long-term trajectory of these trends, this is a stock to buy and hold long term. That’s particularly true if the company’s market share growth continues as expected.
Strong financials
Shopify’s recent earnings report tells a story of a growth stock with a strong trajectory intact. The company’s 23% year-over-year revenue and gross merchandise value (GMV) growth this past quarter is impressive, with margins doubling to 12% this year (from 6% last year). It’s the company’s margin growth that particularly excites me, with more revenue coming from the company’s subscription business lines overall.
So long as margins continue to expand and cash flows and earnings follow suit, this is a large-cap tech stock that could have plenty of fundamental tailwinds to consider. That brings us to the final reason to buy this stock.
Growth plans look juicy
Seeing greater organic profitability from existing clients is one thing. But for Shopify, a company that’s clearly valued based on a lot of future growth, top-line growth matters.
The company is making the right moves to enhance its long-term growth profile, considering expanding into various global markets as existing markets become more saturated. Over time, this strategy should provide a strong upside for investors looking for the kind of growth that’s been lacklustre following the pandemic.
Now, with the pandemic tailwinds behind us, investors can have a better idea of where future growth will come in. In my view, this is a stock that could outperform in the coming quarters, making it a short- and medium-term pick of mine here.
