2 reasons to buy Shopify stock like there’s no tomorrow

Looking to add a growth stock to your portfolio that could generate huge upside for years to come? Shopify (STORE 3.18%) is the answer. The company benefits from a structural advantage that is shared by many of the world’s largest companies. And the rating might surprise you.

The secret to Shopify’s success

Do you want to invest in stocks that can grow gradually over decades? Look for “platform” businesses – those that create foundations on which other things can be built. Many people don’t realize the power of platforms, even though they facilitate many aspects of everyday life.

“Platform businesses are taking over every industry and are already part of our daily lives, whether we realize it or not,” explains global consultancy Deloitte. “The platform business model does not own the means of production, but rather creates and facilitates the means of connection.”

Consider a company like Meta platformswhich owns some of the world’s largest social networks, including Facebook, WhatsApp and Instagram. What experience does a user have when using these networks? Mainly other users and the content they create. As such, Meta does not create the user experience as much as it allows its users to create experiences for each other.

When done right, platform companies can grow much bigger and faster than the competition. That’s because the company itself doesn’t have to do all the construction. The users themselves are, in a sense, a huge workforce that contributes as a form of engagement. This is why Facebook’s social networks dominate the space, even if the underlying technology is nothing special.

Shopify takes this platform approach in a slightly different direction. The company’s technology enables individuals and businesses to create online storefronts. Users can start selling online in minutes with web design, inventory management, ad spend, payment processing and a whole host of other essential business services built in. But Shopify also connects with hundreds of other services, including content channels like YouTube and TikTok. , advertising platforms like Google Ads and Tableauand dozens of fulfillment services. Most of these tools weren’t created by Shopify itself — they were created by third-party developers who are free to build on the Shopify platform, monetizing their creations in return.

This platform approach is why Shopify has a significant market share in the US among e-commerce suites. It has thousands of developers creating new features for its platform — including a number of next-generation AI features — that should keep its technology ahead of the pack for years to come.

The rating is not what you would expect

Shopify has the most users of any e-commerce platform in the US, and this lead attracts more developers, who create greater functionality and contribute to even greater long-term user growth. This is a virtuous cycle that should continue for years, if not decades. And the potential addressable market is huge. This year, online spending in the US is expected to reach $1.2 billion, a figure expected to grow to $1.9 trillion by 2029.

What is the price to buy this high-quality, market-leading platform stock with ample room for long-term growth? Stocks are expensive by some standards, but not as expensive as you might think. After a sizeable correction in recent months, Shopify shares are trading at just 11.5 times sales. That’s big compared to most stocks, but a bargain compared to Shopify’s recent history. And revenue growth is still over 20%, which means the sales multiple is getting cheaper every year. For example, the stock trades at just 8.4 times next year’s estimated sales.

BUY PS Ratio data by YCharts.

Shopify’s growth is a long-term story. It has the right business model and a head start on tapping into a massive, growing market. The premium is worth the risk, but only for patient investors. High-growth stocks like this can move in any direction in the short term, and Shopify’s unpredictable chart is no exception. But in the coming years, expect Shopify stock to easily outperform the overall market.