These 3 Stocks Are Up at Least 5,000%. Here's Why They're Still Buys (SHOP)

Shopify: Helping businesses grow online

Brian Withers (SHOP): Shopify has grown from humble beginnings to a $4.4 billion annual run rate business facilitating almost $120 billion in online purchases in 2020. With its fantastic business results, market trouncing stock appreciation has followed. In the year following its IPO, investors could have purchased shares of this incredible company for a jaw-dropping $20 per share, representing a 7,437% return since 2015. 

While that kind of amazing return may not be possible going forward, it’s not too late to pick up shares of this high-quality business and still make market-beating returns. Let’s look at why.

First, the company is still growing at a rapid pace. Even as the economy opens up and more brick-and-mortar stores are welcoming back in-person shoppers, the company posted 57% year-over-year revenue gains on top of a 40% year-over-year boost in online purchases. The company has become even more profitable as the added coronavirus traffic has helped the company scale its costs and pad its bottom line.

Data source: Company earnings releases, calculations by author.

Second, this “overnight success” from the coronavirus has been a long time coming. In 2015, Shopify hosted 165,000 merchants on its platform. Today, a few short years later, there is more than 10 times that number-- 1.7 million merchants depend on Shopify every day with their online stores. These merchants sell products in 175 countries around the world giving this online e-commerce player truly global exposure to the rise of e-commerce. Looking just at the small and medium business segment, management estimates its addressable market to be $153 billion. So its $4.4 billion annual revenue run rate is a small sub-3% share of the market.

Lastly, Shopify benefits when its merchants on its platform are successful. In addition to monthly subscription fees for its platform, Shopify takes a small cut of every sale with its merchant solutions segment, which makes up 70% of its most recent quarter’s revenue. This segment has grown faster than the subscription services business and could fuel growth even if new merchants don’t join the platform. Given this alignment, the company and its management team are highly incentivized to help these entrepreneurs grow their businesses, which is something shareholders should love.

Investors may look at this $175 billion-plus market cap company and think the growth is over, but they couldn’t be more wrong. Shopify will continue its mission to make commerce better for everyone and along the way, make shareholders happy too. It’s not too late to add this high-quality operator to your portfolio.