Purchasing Shopify Shares Now Potentially Secures a Lifetime of Financial Advantage?
Purchasing Shopify Shares Now Potentially Secures a Lifetime of Financial Advantage?
There are exceptional investments, and then there are game-changers. exceptional investments may yield favorable returns for some time. Game-changers, however, can potentially transform one's financial prospects, often serving as a portfolio's primary growth engine. Investors are content with holding some of the former, but their ultimate goal is to acquire the latter.
As of now, it's unclear whether the e-commerce platform Shopify (SHOP 1.60%) falls into the category of exceptional investments or game-changers. Since its 2015 IPO, Shopify has demonstrated remarkable performance, despite its periodic ups and downs. With the online shopping sphere becoming increasingly crowded, though, can this stock maintain its streak of delivering above-average returns for an extended period, setting you up financially for life?
Shopify's growth potential is undeniable
For those unacquainted, Shopify assists businesses of all sizes in building and managing their own e-commerce operations.
Shopify was founded to alleviate the frustrations experienced by merchants and sellers with platforms such as Amazon or eBay. By allowing its clients to sell directly to customers without the need for a middleman, Shopify offers a compelling solution for many business owners. Although Shopify charges subscription fees for access to its technology and takes a small cut of the sales it facilitates, its value proposition often outweighs the costs.
Nowadays, Shopify is responsible for facilitating over $270 billion worth of merchandise sales through its platform in the past year, generating $8.2 billion in revenue for itself in the process.
Its revenue and earnings are still growing exponentially, and this trend is expected to continue. Analysts project that this year's top-line growth of almost 25% will be followed by a growth rate of more than 22% in 2025, elevating its revenue to over $10 billion. Earnings per share are projected to nearly double to $1.32 this year, increasing further to $1.51 in 2025.
Despite this impressive growth, Shopify's growth rate is slowing down – a natural consequence of its significant size, its rapid past growth, and an increasingly saturated (and competitive) market. These factors are unlikely to change in the near future. Moreover, the stock is currently trading at 77 times next year's projected earnings, just below the analyst community's consensus 12-month price target of $119.70. Nearly half of these analysts have rated the stock as merely "hold" at this time.
This isn't an overwhelmingly bullish sentiment.
Zoom out and consider the bigger picture, though. Shopify still has ample room for growth. As the market share leader in key regions, it is poised to capture more than its fair share of e-commerce's ongoing expansion.
The tide of e-commerce has yet to reach its crest
Despite the hype and disruption caused by e-commerce, online shopping accounts for only about 16% of U.S. retail sales. The majority of shopping still takes place in brick-and-mortar stores. Similar trends are observed in other countries.
For logistical and convenience reasons, some shopping may never leave the physical realm. However, a significant portion of the remaining 84% of retail spending could shift online. A report from Forrester Research predicts the global e-commerce market could expand from $4.4 trillion this year to $6.8 trillion by 2028. This aligns with forecasts from the U.S. Department of Commerce. Even then, online shopping would account for less than one-fourth of the world's retail spending. This leaves plenty of room for further penetration of a global retail market that should be worth $29 trillion by then. As the number of digitally native consumers continues to rise, online shopping is poised to become increasingly mainstream.
For Shopify, any and all e-commerce market growth is beneficial. More importantly, it is expected to significantly boost its bottom line.
This is a business that scales up well. Whether the company supplies its technology and platform to 5,000 businesses or 5 million, the cost of development remains largely the same while the incremental costs of deployment to more customers are relatively minimal. Even though its growth may be slowing, look for its profit margins to continue expanding as time progresses. This is why Shopify's stock might grow into its current lofty valuation – and perhaps sooner than some investors might expect.
The rollercoaster ride is worth the risk
Expensive stocks are inherently volatile, despite their path towards fairer valuations. This stock is no exception. If you believe Shopify's future is bright, you can afford to wait for a while to observe how the stock's post-summer rally subsides. You might be able to buy at a lower price than the current one.
However, don't wait too long or be overly frugal in your price negotiations. More and more investors are beginning to recognize the potential of e-commerce's long-term future while acknowledging Shopify's prominent role in it. Their optimism could potentially bolster the shares.
So yes, investing in Shopify stock today could potentially set you up financially for life. The world's demand for more and more of its platform and services is likely to grow as consumers continue to shift their spending online. The end of Shopify's growth phase may be decades away, so an investment in it today could yield returns for a lifetime.
Shopify's potential as a game-changer in the finance and investing world is being closely observed due to its impressive growth in the e-commerce sector. Its platform has facilitated over $270 billion worth of merchandise sales in the past year, generating significant revenue, and analysts project a continued growth rate into 2025.
Given Shopify's role as the market share leader in key regions and the ongoing expansion of the e-commerce market, investing in its stock could potentially deliver above-average returns for an extended period, transforming one's financial prospects.