Shopify (SHOP -3.29%) stock may be well-known for having benefitted from the coronavirus pandemic, as more people turned to online shopping and selling, but the company was thriving even before the COVID-19 outbreak. Indeed, investors who bought $1,000 worth of Shopify stock on Jan. 1, 2016 would have a whopping $2.24 million today.

This incredible return came as the company benefited from widespread growth in the public's e-commerce spending. Let's take a closer look at the business to see what's causing its enviable performance and determine if newer Shopify investors can expect similarly extraordinary returns. 

Chart showing rise in Shopify's price in 2020 and 2021, followed by a drop in 2022.

SHOP data by YCharts

Enabling e-commerce 

Shopify helps to create, maintain, and grow the online presence of entrepreneurs and small and large businesses. The work includes websites and app development, payment processing, order fulfillment, and more. That's been a great business to be in, considering that consumers have shifted their habits in recent years to shop online more. Even pre-COVID, from 2013 to 2019, e-commerce sales as a percentage of overall sales in the U.S. increased from 5.8% to 11.1%. Of course, the pandemic's forced closure of non-essential businesses further increased online purchases, raising the aforementioned figure to 14.2% by 2021.

Shopify revenue benefited from this trend, ballooning from $50 million in 2013 to $4.6 billion in 2021. With revenue growing nearly 100x, it's clear why Shopify stock has performed so well. But this impressive showing goes beyond surging sales. The company hit an inflection point in 2020, reporting an operating profit ($90 million) for the first time in years and then tripling that in 2021.

Chart showing rise in Shopify's revenue since 2016.

SHOP Revenue (Annual) data by YCharts

Shopify stock will likely keep succeeding due to the continued growth prospects of e-commerce. Even though online spending as a share of overall spending has risen sharply over the years, there is still much more room to go, as the vast majority of shopping is still done in physical stores. According to Statista, e-commerce's share of overall spending will rise to 21.9% by 2025. Even then, it's not difficult to imagine that e-commerce sales will outpace expected growth, a notion that makes Shopify investors excited about the company's future.

Two people using laptop in kitchen.

Image source: Getty Images.

Shopify stock is as cheap as it's been in years

Despite its massive surge in stock price, Shopify is as cheap as it's been in years. That's because the company justifies a higher share price with increased sales and cash flow. As illustrated in the chart below, Shopify's current price to free cash flow of 169 is also near the lowest it's ever been. We see a similar trend when looking at the company's price to sales (P/S) ratio, which, at 16.7, is just about the lowest it's been in the last five years. 

What's more, the company just announced plans for a 10-for-1 stock split, which would make the stock even more affordable for everyday investors.  The split will need to be approved by a majority of Shopify shareholders at a June 7 meeting before going into effect. 

Charts showing fall in Shopify's price to free cash flow and PS ratio since 2021.

SHOP Price to Free Cash Flow data by YCharts

Admittedly, Shopify's chances of duplicating the plus-2,000% returns it's seen since 2016 over the next five years are slim. That said, the company has excellent prospects and is riding tailwinds from rising e-commerce spending and inexpensive valuations. All this means that investors buying the stock today could still benefit from remarkable gains in the future.