Shopify (TSX:SHOP) went public in 2015 and has since returned over 3,700% to shareholders. Valued at a market cap of over $200 billion, Shopify is among the largest companies in Canada and has established itself as a key player in the e-commerce segment. The Shopify platform powers more than two million businesses globally and has revolutionized how entrepreneurs bring their products to market.
After experiencing significant growth amid the COVID-19 pandemic, Shopify has struggled with slowing sales and consumer spending in recent years. The company lowered its cost base to offset these headwinds and exited low-margin segments such as fulfillment centres.
SHOP stock has returned 46% in 2024 and currently trades 30% below all-time highs, allowing you to buy the dip and gain exposure to a quality growth stock at a lower multiple. So, let's see where Shopify stock will be in one year.
Is Shopify stock a good investment right now?
Shopify offers a comprehensive e-commerce platform allowing businesses to create and manage online stores. At its core, Shopify provides users with customizable website templates, secure payment processing, inventory management tools, and shipping solutions — essentially everything needed to run an online business from a single dashboard.
Shopify operates on a subscription model and offers different service tiers, from basic plans for startups to advanced solutions for enterprise-level businesses. In addition to hosting online stores, Shopify's product portfolio includes point-of-sale systems for retail stores, marketing tools for social media integration, and more.
What sets Shopify apart is its extensive app ecosystem, where third-party developers offer specialized tools and integrations that merchants can add to their stores.
In the third quarter (Q3) of 2024, Shopify delivered exceptional performance for the fifth consecutive quarter, with gross merchandise volume growth exceeding 20%. It reported a 26% increase in sales while operating income more than doubled year over year. It ended Q3 with a free cash flow margin of 19%, allowing the tech giant to combine growth with profitability.
Shopify emphasized it is making significant strides in automation and artificial intelligence integration. For instance, it has equipped Shopify Flow with new automation capabilities, implemented AI-powered response suggestions in Shopify Inbox, and automated tax filing processes. These improvements are designed to streamline merchant operations and improve efficiency, which should translate to higher engagement rates.
Notably, Shopify's international expansion has been quite strong, with gross merchandise volume growing by 33%. Its business-to-business segment also demonstrated solid performance, growing 145% year over year in Q3.
What's next for SHOP stock?
Shopify expects Q4 sales to grow at a mid- to high 20% rate in 2024 as the company plans to maintain the current free cash flow margin profile while investing in growth initiatives.
Analysts tracking Shopify expect sales to rise from $7.06 billion in 2023 to $12.5 billion in 2026. Its adjusted earnings are forecast to expand from $0.73 per share in 2023 to $1.9 per share in 2026. Comparatively, free cash flow is forecast to grow from $905 million to $2.6 billion.
Priced at 76 times forward earnings, SHOP stock trades at a lofty multiple supported by strong growth estimates. Analysts remain bullish and expect the TSX tech stock to gain over 10% in the next 12 months, given consensus price target estimates.
