Why Investors Should Be Watching Shopify

Shopify (SHOP 1.11%) stock has a long runway for growth ahead as e-commerce expands into more niches over the next few years. Its dominant position in the industry may translate into market-crushing returns for shareholders, too. 

In this video from "The Virtual Opportunities Show," broadcast on Nov 30, Motley Fool contributors Asit Sharma and Rachel Warren highlight some reasons why Shopify is a stock worth keeping on your watchlist.

Rachel Warren: Well, I'm going to talk about a company, I own shares in and that's Shopify. The stock I was checking actually felt like three percent today. But year-to-date the stock is up about 40 percent over the last five years, the stock's up almost 3800 percent. This is definitely one of those very pricey companies. It currently trades for about $1,500 for a single share.

But when we're talking about these trends in digital transformation, Shopify is a company that automatically comes to mind for a couple of reasons. One of the most obvious being, this is a platform that enables entrepreneurs to basically build their own online stores from scratch whether they have an existing retail presence or not. They can also use it to complement an existing retail presence. To essentially be location-independent, have flexible working options, and run their own brand from wherever in the world they choose to be.

That is one of the great things about the Shopify platform, whatever kind of store you want to start, whether it'd be at a food store or an online clothing brand, Shopify has endless integrations and tools that enable customers to connect with suppliers and tools that enable smooth and seamless payment options, inventory management, the list goes on. I think one of the things I love about this company is that we're seeing how incredibly relevant it is in a time where I think a lot of people are looking more at starting their own businesses, looking at freelancing, maybe doing that side hustle. But also, I think Shopify fits into the broader theme of digital transformation from its own business perspective.

One of the mantras of the company, if you will, is that conformity kills creativity. On their website they say culture is the product of strong values and purpose, empathetic leadership and a place where all people feel that they belong. I think that's really, really important message to have out there. I love the fact that Shopify is encouraging so much diversity and personal growth has been its own company culture and then it also happens to provide this platform that enables individual to blaze their own trail, so to speak. From a financial perspective, the company continues to do exceptionally well quarter after quarter. Just real quick, its most recent quarter revenue was up 46 percent, year over year. Monthly recurring revenue was up 33 percent year over year.

An interesting thing also, the company just released data from Black Friday that Shopify merchants understood the assignment of smashing Black Friday Cyber Monday records with $6.3 billion in sales and that it merchants using the Shopify platform worldwide more than doubled its sales compared to pre-pandemic sales from 2019. If anyone was concerned that maybe there will be a slowdown in online shopping as the world's fully reopened, I think this is a prime example of how people are continuing to rely on these online platforms. I love this stock.

Obviously it doesn't come cheap. I don't think that's a surprise anymore. Most stocks in this space are pretty pricey. Fractional investing is a great thing to consider if this is a stock that you're interested in. But I think Shopify is going to continue to be at the forefront of this digital transformation we're seeing, both in the way that people are working. Because you can basically start your own company from scratch using Shopify platform, as well as in the way people are shopping. Retail is increasingly turning digital, and the platform that Shopify offers.

You can go to so many stores that you know, and you're scroll the bottom and you see, the store is powered by Shopify. I think this is a really impressive company to watch or even consider perhaps investing in a space that you find compelling.

Asit Sharma: I really love the culture over there. I think Tobi Lütke is an amazing leader of the company. It struck me. I think this past fall, he tweeted out that, we're not a family here. Your family that people that you're related to. The essence of this message was we're a business but we care about our people. That really resonated with me. You be careful when your company tries to cite the proposition.

We're like a family. Tobi will say no, [laughs] you're not like [laughs] a family. You didn't grew up in the same house, you're not related by blood. But that doesn't stop them from having an amazing culture and that's part of their secret sauce. Sometimes, phenomenal investments are right in front of us even though they've already performed extremely well. There's a reason for that performance and there's a reason why certain companies can keep compounding.

To me, they're like a quintessential compounder in the space. They are dominant in their markets and they're just going to keep getting bigger.