Not that it's a ton of money anymore, but for most people, building an investment portfolio up to the million-dollar mark is still a big deal... financially as well as psychologically. The keys to reaching this milestone are, of course, committing enough money to the effort, adding more funds to your portfolio regularly, and choosing smart investments.
With that last point in mind, investors on the hunt for new stock opportunities should have Shopify(NYSE: SHOP) on their radar. It has been rallying of late, and should continue to make big gains for the indefinite future.
What is Shopify?
The best way to describe the bull case for Shopify is by comparing and contrasting it with e-commerce behemoth Amazon(NASDAQ: AMZN).
But first things first.
If you're old enough, think back to the mid-1990s. The World Wide Web was new, dial-up connectivity was the norm, and online shopping wasn't yet common. A curious little company called Amazon was merely poking at the brick-and-mortar bookstore business.
Just a few years later, that curious little company would have the entire U.S. retail industry on its heels. Amazon.com hasn't just grown into a top-of-mind website for consumers to shop. It has become a go-to name for brands and merchants to sell online.
However, the sheer size and nature of the e-commerce platform have turned it into the proverbial Wild West. Some third-party sellers that use the marketplace to hawk their wares are less than honest, frustrating both buyers and the more scrupulous sellers. It also didn't take long for merchants to recognize that by doing business on the site, they're "feeding the beast," so to speak -- building up Amazon's business more than they're building up their own.
Enter Shopify.
Launched in 2006, it's essentially the un-Amazon. It helps brands and merchants set up and manage their own online stores, allowing them to directly cultivate relationships with their customers. This approach also means these sellers aren't forced to constantly compete with rivals as they must when using Amazon's platform.
The rest, as they say, is history. With several million online stores now utilizing its digital solutions, Shopify facilitated the sales of $292 billion worth of goods and services last year, and booked $8.9 billion worth of revenue for itself. Those numbers were up 24% and 26%, respectively, from 2023, and their growth is expected to keep going strong for at least the next several years.
The bullish case
Although the story is compelling, it's not exactly news. Indeed, with Shopify shares up nearly 400% from their 2022 post-pandemic low and priced at more than 80 times this year's expected earnings per share of $1.50, there's seemingly little market-beating upside left to tap.
This is one of those cases, however, where the future for a company looks so bright that the market is willing to price its expected earnings growth for the next three to five years -- or more -- into the stock. And there's every reason to believe Shopify will continue to grow as it has been.
Data source: StockAnalysis.com. Chart by author.
Part of this growth is of course being driven by the aforementioned reality: Brands and smaller businesses increasingly recognize that they can do for themselves online what they once let Amazon do for them. Without Amazon acting as an intermediary, in fact, those merchants are even better equipped to gather customer data and build real relationships with customers.
And as it turns out, people crave authenticity and personalization when it comes to buying goods and services. Shopify can help sellers offer it. Amazon? Not so much.
Meanwhile, the overall e-commerce market is still growing rapidly.
According to the U.S. Census Bureau, as of the fourth quarter, only about 16% of the nation's retail spending was done online. The rest was still done in stores and in person. Certainly some of this shopping will never be done outside of brick-and-mortar establishments, but a big chunk of it is still up for grabs. A report from industry research outfit eMarketer forecasts that the U.S. e-commerce market will grow at an annualized pace of around 9% through 2028, easily outpacing the overall retail sector's likely growth.
Shopify is also spreading its wings overseas now, and its opportunity to help foreign brands sell directly to consumers is just as compelling. From 2024 through 2027, eMarketer forecasts the international e-commerce market will grow at a similar pace to the domestic market.
Already a leader in the e-commerce platform arena, Shopify stands to win more than its fair share of this growth.
A great buy for patient, bigger-picture-focused investors
That's the bullish thesis -- but like any investment, this one isn't flawless or risk-free.
For instance, it's possible Amazon could refine its merchant-selection process, reducing the number of them on its platform, and that the remaining ones end up doing more collective business as the site reestablishes its full credibility and shopability. It's also worth mentioning that Walmart's e-commerce site is already open to a small number of curated third-party sellers. Both companies pose threats to Shopify's continued growth.
There are also legitimate valuation concerns regarding the stock.
Although Shopify stock's past and projected price-to-earnings ratios aren't out of the norm for an up-and-coming company that's growing as quickly as it is, such forward-looking stock pricing leaves it vulnerable to a tumble if the company delivers disappointing results. In other words, Shopify shares are priced for perfection. Anything less could prove at least temporarily problematic for the stock.
Taking the long view
That said, the big-picture point worth keeping in mind is that as investors, we're not just buying stocks, but pieces of companies. More to the point, we're buying into those companies' underlying premises, which are what will ultimately determine how well those stocks will perform over the long run.
From this perspective, Shopify is one of a handful of bull market names that could help you become a millionaire. Just bear in mind that it's a long-term investment prospect that could still dish out plenty of volatility in the meantime.
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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. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Shopify, and Walmart. The Motley Fool has a disclosure policy.
