Shopify(NYSE: SHOP) stock is down 51% from its all-time highs back in 2021. But after encountering some obstacles on its upward trajectory, it looks like it's back in action. It has tremendous growth drivers and a powerful e-commerce platform, and it's finally profitable again. Does Shopify stock have what it takes to turn investors into millionaires?
Back in business
Shopify was hardly a household name before the COVID-19 pandemic. It was still making its way as a new tech company, and it isn't consumer facing. It provides an e-commerce platform for any business, large or small, to get started selling online.
The company managed through accelerated and unexpected demand for its products with flying colors, and it expanded to offer a broad array of e-commerce services. Need a full e-commerce presence including custom website and payment processing? Check. Just need the payment processing part or data analytics? Check there, too.
The company has now overcome most of the backlash from building out too quickly and getting rid of the resulting unnecessary infrastructure. It's still reporting healthy growth while generating stronger profitability and free cash flow.
SHOP Revenue (Quarterly) data by YCharts.
Shopify is now well positioned to keep increasing sales and passing more on to the bottom line.
E-commerce is still taking off
Amazon Prime members might challenge this, but e-commerce still makes up only a fraction of total retail sales. People by and large still prefer to shop in physical stores, and although it looked like e-commerce was taking over, shoppers are settling into a preferred omnichannel world. People want options, and that's where Shopify shines.
It can get any business up and running online practically overnight with a professional web presence even if the owners are shipping out of their basements. But it can also connect a physical store to millions of shoppers across the country and provide a unified platform for all of its management.
Shopify's edge is in this niche. It's one of the largest e-commerce companies in the world, but it doesn't actually sell or ship any products, save for some hardware like point-of-sales devices. As a service-based business, it should be able to scale profitably now that it has reset its expense base.
E-commerce is still expected to grow as a percentage of retail sales. According to eMarketer, they were 19.5% of total sales in 2023 and are expected to reach 23% by 2027. To get a sense of what those "small" percentage changes mean, e-commerce sales were $5.8 trillion last year, but they're expected to get to $8 trillion in 2027.
Shopify is the largest e-commerce software platform in the U.S., about 30% of the market, and it will benefit organically from that shift. It faces more competition globally, where it's topped by Woo Commerce. However, it has the highest share of any e-commerce platform player for large businesses, even globally.
Gaining international market share is one of its growth goals, and internationally, merchants joining the platform increased 30% year over year in the second quarter.
Crunching the numbers
Shopify is bound to keep growing. But can its stock help you become a millionaire? It's still striving to become sustainably profitable while maintaining strong growth rates. Investors are waiting to see how that works out before sending the stock higher -- it's up only 6% this year.
At the current price, it's quite expensive, trading at 60 times forward one-year earnings. That bakes a good amount of growth into the price, so even if Shopify continues to perform well and report positive net income, it may not be able to keep climbing, at least in the near term.
What about longer term? Shopify has an excellent business that's hard for competitors to challenge. It's the dominant player in the industry, and it keeps investing in new products and services to keep that spot.
Shopify stock has a market cap of $107 billion, so to create huge gains, it would need to get close to trillion-dollar status. It might do that over time, but it could still reward investors with less spectacular moves.
As with any stock, how much you make depends on how much you put in. If you have some appetite for risk and a long time horizon, Shopify could be a part of a growth-focused portfolio that could eventually lead to millionaire status.
Should you invest $1,000 in Shopify right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.
