I’ve long been a strong proponent of investing in companies with durable moats and solid growth prospects. In the Canadian market, Shopify (TSX: SHOP) does appear to be a long-term winner worth considering on pullbacks. Indeed, the chart below highlights my argument better than most analyses you’ll read on the company.
Of course, there are many drivers of Shopify’s long-term performance that are worth diving into. Here’s why I think Shopify is likely poised for even higher highs over the long term.
Source: Getty Images
Strong earnings momentum
I’d argue that investors should assess most moves in a given stock not on traditional momentum metrics, such as how a given stock price has moved over a specific time frame (what’s called “technical analysis” by some), but rather by the merits of a company’s underlying fundamentals.
On that basis, Shopify stands out as a clear potential winner, with strong revenue growth and the potential for acceleration on this front down the road. This past quarter, Shopify saw its revenue rise more than 30% on a year-over-year basis, with earnings per share of $0.35 beating analyst estimates and providing an even more robust outlook for the company’s balance sheet moving forward.
In combination with a strong free cash flow margin of 16% and this solid balance sheet, I think Shopify is well-positioned to potentially make acquisitions and add to its industry-leading growth rate over time.
AI-focused transformation
The other key aspect to Shopify’s growth story we have to focus on is the company’s AI ambitions. With targeted strategic bets on AI enhancements, Shopify is hoping that hyper-personalized product recommendations and innovations within the world of search may drive additional transaction volume (and revenue) for the company over time.
Thus far, these integrations appear to be paying off. Over the long term, we’ll have to see how robust this growth can remain and whether this initial surge in overall volume is sustainable.
But for now, in terms of platform plays within the AI realm, Shopify remains one of my top picks. I don’t think that’s going to change anytime soon, unless something meaningful changes with the company’s core underlying thesis.
