Growth stocks shouldn’t be taken lightly. Just look at the Shopify Inc. [TSX:SHOP](NYSE:SHOP) stock to get an idea of what I mean. It has more than tripled in the last 12 months. You can’t argue against Shopify’s outperformance, except that it hasn’t turned a profit – yet. The company is expected to start making a profit as soon as late this year.
Shopping today is different from shopping 10 years ago. Nowadays, merchants may sell their products through their online store, their physical stores, marketplaces, social media, mobile apps, and other sales channels.
Shopify “provides (merchants) with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships, and leverage analytics and reporting from one integrated back office”. – 2016 annual report (pdf)
Shopify’s growth strategies focus on growing its merchant base. At the end of 2016, Shopify had more than 377,500 merchants from roughly 175 countries using its platform with a strong focus in the United States. This suggests there’s much room for potential international growth in the future.
From 2013 to 2016, Shopify grew its revenue at a compound annual growth rate of 98%. This year, management expects to grow its revenue by 49-54% to $580-600 million.
Should You Buy Shopify Today?
Shopify is growing at a rapid pace, but it trades at sky-high valuations: price/book of 21.5 and price/sales of 17.7. It’s difficult to determine how high a valuation one should pay for the high-growth shares. (It depends on how much you want the shares.)
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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