Investors looking for top growth stocks to invest in over the long term (say, the next five years or longer) have plenty of options to choose from. Indeed, the U.S. stock market is chock full of high-growth tech names investors can choose from to generate above-market returns in terms of growth.
Now, the options are a bit more limited on the TSX. But one growth stock I’ve long touted as a long-term winner (that’s started to pick it up in recent quarters) is Shopify (TSX:SHOP).
Here’s why this e-commerce giant looks like a solid buy for growth investors right now.
Solid long-term growth trajectory
Let’s start off this piece with an assessment of what it is Shopify actually does.
The tech giant provides a suite of software products enabling businesses of all sizes to set up online shops. Shopify has emerged as a top option for investors looking to play the long-term compounded annual growth rate of the e-commerce sector. This factor remains among the key growth drivers investors focus on for the Ottawa-based company.
Currently working with 5.6 million active customers in more than 175 countries, Shopify’s business model is broadly diversified and extremely efficient and scalable.
Recent results highlighted this reality, with the company bringing in 26% revenue growth in its third quarter, which amounted to a free cash flow margin of 19%. That’s hard to find in any high-growth stock, or a company with a growth rate that’s even close to Shopify’s.
Part of this has to do with an overarching narrative that e-commerce growth could eventually slow, and grow closer to the rate of overall retail over time. I think that will certainly be the case, but the question is one’s timeline. I think there’s still a decade or two of increased adoption that needs to take place first, and Shopify is at the forefront of this trend.
Bottom line
As Shopify’s payment processing services become more and more integrated, investors stand to benefit. This can be seen by multiple metrics, such as Shopify’s Gross Payments Volume (GPV) accounting for 61% of GMV, up from 58% the year before. Over the next five years, analysts predict that Shopify’s operating income will increase at a compound annual growth rate (CAGR) of 41%.
Shopify’s strategic objectives, such as integrating artificial intelligence (AI) throughout its platform, reflect this positive perspective. Together, these AI-powered features, collectively referred to as Shopify Magic, improve every aspect of the merchant experience, from operations and customer service to marketing and sales, increasing productivity and profitability.
Additionally, Shopify is well-positioned to benefit from its strategic move towards catering to larger businesses in the long run. Shopify wants to increase profitability and ensure more consistent income streams by luring big clients like Reebok, Overstock, and Barnes & Noble. Even though this decision will cost more upfront, it should pay off handsomely, with considerable benefits predicted starting in 2025.
Over the long term, Shopify looks like a growth stock with room to surge much higher. This remains among the top Canadian growth stocks I’m bullish on right now for these reasons and others.