#1 Growth Stock to Buy Now

As investors look for the next high-growth success story, tech stocks continue to be the main area of focus. One company that is sometimes overlooked but which may have hidden potential is eCommerce service provider Shopify (NYSE:SHOP).

 

Far from being just a merchant services company for independent online sellers, Shopify is a major part of the modern digital sales ecosystem. Here’s what you need to know about Shopify and why it could be the number one growth stock to buy right now.

 

Shopify is one of the major beneficiaries of the shift toward eCommerce that has occurred over the last several years. As of 2021, the company controlled 10.3 percent of the American eCommerce market by sales volume.

 

Shopify is also beginning to move beyond its roots as a provider of merchant services to small businesses. Businesses that began as smaller Shopify stores are beginning to go public, giving the company a presence in the corporate eCommerce market.

Shopify also has a massive reach that extends far beyond the North American market. As of 2021, Shopify users were running over 1 million businesses spread across 175 different countries.

 

Shopify Plus, the company’s premium service offering, is seeing a rapid uptick in its user base. By the end of 2021, there were over 14,000 Shopify Plus merchants. 4,000 of those had upgraded to the service in 2021, marking the strongest year for transitions to the company’s premium service package.

 

Shopify is even expanding by more fully integrating payment processing and social media marketing into its services. Both of these are crucial to modern small businesses selling their products and services online. Shopify does an excellent job of expanding its services to meet the needs of its merchants, keeping it at the front of the eCommerce industry.

 

Thanks to all of these factors, Shopify is poised for high growth rates over the next few years. Growth of up to 30 percent over the next five years is perfectly attainable, especially if current online shopping trends hold steady.

 

Shopify stock also stands out as a good growth option due to a selloff in the early months of 2022. Shopify lost over 45 percent of its value during a general drop off in tech sector stocks. This has left the stock with a P/E ratio of 24.56 and a price-to-book of 6.38.

 

While it’s very difficult to argue that these numbers represent low pricing, they are fairly modest when compared to other high-growth, high-valuation tech stocks.

 

Shopify’s Q4 earnings call showed a continuation of robust growth in the final quarter of 2021. Revenue increased by 41 percent year-on-year to $1.38 billion.

 

The vast majority of this revenue came from merchant solutions, which grew by 47 percent. Gross sales by merchants using the Shopify platform also rose considerably, with Q4 sales totaling $54.1 billion. This represents a 31 percent increase over the same period in 2020.

Shopify earnings in Q4 reached $1.36 per share, beating the consensus estimate of $1.33. The earnings report for Q4 was an excellent return to form for Shopify after a significant miss in Q3. If the company avoids another major miss in the first half of 2022, there’s a good chance that the stock will begin a marked recovery.

 

Other excellent growth metrics also appeared in the Q4 earnings report. 2021 saw 600 million shoppers make purchases from Shopify stores, up more than 30 percent from the previous year.

 

Shopify Capital, the company’s business funding platform, also made 43 percent more loans in Q4 than the same period in 2020. This funding branch gives Shopify a potentially lucrative revenue stream that will likely grow as more merchants take advantage of it.

 

Analyst price targets for Shopify are extremely bullish. Even though it currently trades under $600 per share, the average target price for the stock is 1,135.77. If achieved, this would represent an astonishing 97 percent upside over the next 12 months.

 

Even the lowest current estimate puts the stock at $800, an upside of 39 percent. At the high end of the spectrum is an estimate of $2,000. While quite unlikely, this would result in an upside of over 347 percent.

 

As you can see, the range of estimates for Shopify is extremely broad. This points to some uncertainty about just how well the stock will fare over the next 12 months. Given that even the most conservative estimate would put shares up by nearly 40 percent, though, it’s clear that analysts have a generally positive outlook for Shopify stock.

 

Although there’s no denying the high potential rewards of buying Shopify stock, volatility is a major part of the risk profile for this stock.

 

The 52-week range for Shopify goes from $557.37 on the low end to $1,762.92 on the high. The stock is still trading toward the bottom end of this range due to the early 2022 selloff. So, while large profits may be on the table, investors who bought the stock at the wrong time have also been punished with considerable losses.

 

Shopify also runs the risk of slowing down as the COVID-19 pandemic comes to an end. Most experts believe that increased eCommerce sales will outlive the pandemic. If customers incline more heavily toward brick-and-mortar stores, though, companies like Shopify could see their growth slow. This, in turn, could delay the stock’s recovery.

 

Despite a concerning selloff, Shopify appears to be in a very good position to produce returns for investors who get in while the price is still low.

 

An excellent platform that is attracting both more merchants and more shoppers acts as a strong foundation for the company’s future.

 

With new features, more social media and payment integration and other improvements, Shopify appears to have a very bright future ahead of it. While there is some risk to eCommerce as a whole as the pandemic winds down, that risk appears to be fairly minimal.

 

Overall, Shopify is a good growth stock for investors who don’t mind a bit of risk. There are no guarantees that the stock will recover this year. Over the five-year time horizon, though, it’s difficult to imagine the combination of high growth and strong revenues leaving share prices in their current state.

 

The returns that a Shopify recovery could generate seem to balance off any risks, making this one of the best growth stocks available at the moment.

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