In the last 10 years, Shopify (SHOP 4.90%) stock is up a whopping 2,250%. It would be hard to find an allocator of capital who wouldn't be thrilled with that type of return on investment, and it makes sense that new investors would be considering jumping into that kind of a success story.
To make the stock even more attractive to retail investors, Shopify announced a 10-for-1 stock split on April 11. The stock split, if approved by shareholders, will reduce the per-share stock price, making it more accessible to potential investors who are unwilling or unable to buy fractional shares.
But that incredible rise in the rearview mirror raises a legitimate concern: Is it too late to buy Shopify stock?
Revenue is exploding for Shopify
For years, Shopify has benefited from a massive tailwind; more and more folks are shifting more of their spending online because of the myriad advantages e-commerce offers over shopping in person. Shopify enables both small entrepreneurs and larger businesses to develop and maintain a digital sales presence. Riding the rising wave of online consumer spending, Shopify's revenues have exploded from $24 million in 2012 to $4.6 billion in 2021.
That roughly 190x growth has turned Shopify into the No. 2 platform for e-commerce spending with a 10% overall market share. Only Amazon has a larger share. Yet despite that incredible run, it has room to grow further. According to consulting firm AMI Partners, its total addressable market in the small business segment alone is $160 billion.
Image source: Getty Images.
Shopify's merchant solutions offer businesses more control over their brands and their customer relationships. That's in stark contrast to Amazon, which leverages its market power to impose unfavorable terms on the third-party merchants that sell on its platform. Further, Amazon sometimes competes with those sellers. For those reasons, many businesses prefer to use Shopify's platform instead.
As of Dec. 31, Shopify boasted 2.1 million merchant customers. Of course, the pandemic led to a surge of new clients and boosted revenue from its existing ones. Typically, its customers grow their spending with Shopify as their businesses expand. Its offerings range from options that meet the basic requirements of small entrepreneurs to full suites of services that meet all the needs of large operations. So the company should continue experiencing gains from the new clients it acquired during the pandemic for many years.
Shopify stock is trading at a discount
SHOP PS Ratio data by YCharts
Though the pandemic accelerated its growth and improved its prospects, Shopify now trades at a price-to-sales (P/S) ratio that's lower than it was at the beginning of 2020, and only around a quarter of its peak P/S multiple, which was above 60. In 2019, e-commerce spending as a percentage of overall spending in the U.S. was just 11.1%. In 2021, that figure rose to 14.2%, and it's forecast to reach 21.9% by 2025. Shopify will likely continue benefiting from that tailwind. Meanwhile, investors can buy Shopify stock at a 2019 valuation level. For these reasons, it's certainly not too late to invest in Shopify.
