Growth stocks can produce spectacular gains. Businesses that expand their revenue and profits at above-average rates for long periods can increase in value many times over, allowing you to turn relatively small investments into staggering amounts of money along the way.
Shopify (SHOP -5.11%) is an example of an excellent growth stock. In less than five years as a public company, Shopify has already made many investors rich. More importantly, its shares should continue to deliver handsome gains to investors from this point forward. Here's why.
Shopify's ascent has been stunning. Shares of the multichannel commerce platform are up an incredible 1,400% since its initial public offering in May 2015.
Shopify has grown by leaps and bounds during this time. Its annual gross merchandise volume (GMV) -- the total amount of sales facilitated by its platform -- climbed from $3.8 billion in 2014 to more than $41 billion in 2018. Shopify's revenue, in turn, soared from $105 million to over $1 billion.
A million merchants use Shopify's tools to operate and grow their businesses. This number should continue to rise in the years ahead, fueled by the growth of e-commerce and entrepreneurship around the world.
Shopify makes it easy for just about anyone to start a business, with offerings that start at $9 per month. Shopify's services scale along with its merchants' businesses, thereby allowing it to both enable and share in their success.
A powerful new growth driver
Shopify's new fulfillment network is a game changer -- the potential impact of which is being underestimated by many investors. Shopify will pack and ship its merchants' products across the U.S. It will use machine-learning technology to help them optimize their inventory levels and minimize shipping costs. And, in contrast to Amazon (AMZN -3.84%), Shopify will let merchants customize packaging so as to keep their own brands front and center in the eyes of their customers. This merchant-first approach should help Shopify quickly gain share in the fulfillment arena, even at the expense of the mighty Amazon.
All told, e-commerce is a massive, multitrillion-dollar industry. By helping small businesses compete with the industry's titans, Shopify has tremendous room for growth still ahead. Management estimates that small businesses alone represent a $70 billion opportunity -- one that Shopify has only just begun to penetrate. In the process of helping these smaller merchants grow their businesses, Shopify is likely to become a far larger company in the coming decade.
Worth the price
At more than 30 times sales, Shopify's shares are far from cheap. Yet great growth stocks rarely are. Quality comes at a price, and in Shopify's case, it's well worth the premium. With powerful global trends fueling its growth and a massive market opportunity still before it, Shopify's current $45 billion market capitalization belies its long-term potential. Investors who buy this great growth stock today are likely to enjoy sizable gains, even from today's lofty levels.