While it can be troubling to invest in a company that has already seen its stock skyrocket by more than 3,600% in the past five years, looking for solid companies to provide a solid foundation for your portfolio can be helpful. one of the best things you can do as an investor. .
Shopify (NYSE: SHOP) can fulfill such a role. Despite its incredible appreciation over the past five years, Shopify could be one of the best fundamental stocks for your portfolio over the next decade, as it provides both stability and growth for long-term investors.
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The foundation of e-commerce
Shopify’s mission is to “make ecommerce better for everyone,” and it does so by offering a wide variety of solutions to help people start, grow, market, and manage their businesses. Its tools allow merchants to sell from anywhere and manage almost any modality of their business, from physical stores to social media stores.
It not only allows customers to locate anywhere, but it complements its ecosystem with payment processing, logistics, and even lending through Shopify Capital. The company was founded on supporting the independence of small and medium-sized enterprises (SMEs), and these additional services have fueled its continued growth.
Shopify has continued to support more than SMBs as it now attracts customers of all sizes, including big brands like General Mills. At the time of this writing, the company has served over 1.7 million businesses worldwide.
Shopify’s resilient stance
With a large and rapidly growing customer base, Shopify became the second-largest company in terms of e-commerce sales in the United States in 2020, holding 8.6% of the total market. He was able to beat mastodons like Walmart and eBay because of its wide (and expanding) offer, combined with its neutrality. While Amazon helps millions of businesses establish a presence in e-commerce, it competes with them at the same time creating conflicts of interest as a platform provider.
Shopify’s cumulative gross merchandise volume (GMV) reached $ 400 billion in the third quarter, and revenue grew 46% year-over-year to $ 1.12 billion. The company divides its business into two segments: merchant solutions and subscription solutions. The former comes primarily from GMV transaction fees, and subscription revenues can range from $ 30 per month for entrepreneurs to over $ 2,000 per month for large businesses.
The company’s recurring monthly revenue – which has grown at a compound annual rate of 43% over the past five years – reached $ 98.8 million in the last quarter. Shopify Plus – its subscription service for businesses – accounted for $ 27.2 million of that base.
With its growing dominance in the market, the company has generated $ 615.4 million in free cash flow over the past 12 months while holding over $ 7.5 billion in cash and securities. Year-to-date adjusted net income of $ 641.5 million has more than doubled from the same period last year.
Extend your option
Shopify does an amazing job of both expanding its platform and making its current offerings more valuable. It has partnered with many companies such as TikTok, where Shopify merchants can now add products that are directly related to their online store‘s checkout.
This continued expansion creates a sustainable option. In the third quarter, management announced Shopify Balance – a money management tool – and Shopify Markets, which will allow traders to enter new geographies with the company’s cross-border payment system so that traders can grow even further with Shopify.
The company has also set up a fulfillment network to provide logistics and shipping solutions to traders. This network will further strengthen Shopify’s relationship with its merchants while generating massive amounts of data to help optimize supply chain efficiency and logistics within the network.
The market sees a lot of value in these various opportunities, and Shopify is trading at 57 times the profit. Despite the shock of the sticker, I think it’s a premium worth paying. The stock won’t repeat its performance over the past five years, but it’s not too late to buy as this growth story is far from over.
A proven track record is exactly what makes Shopify a great candidate for a core position in your portfolio.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
