To find a stock that can impact a retirement portfolio, you're really looking for a few key ingredients. The business would have a huge growth runway ahead that's best measured in decades rather than months. It would need pricing power, too, so that it could steadily boost profitability over time. And ideally, the stock would be available at a discounted valuation that ignores these positive factors in favor of short-term Wall Street worries.
Shopify (SHOP 1.11%) stock might seem to fit parts of this definition of an attractive retirement stock. The e-commerce platform's stock has shot up by over 40% so far in 2023, in part because investors believe it can meaningfully improve on its current 10% market share in the massive U.S. industry.
So, let's take a closer look at Shopify stock as a potential game-changing long-term investment.
Latest results
Shopify's 2022 results paired strong growth with some concerning financial stumbles. Sales rose a healthy 23% after adjusting for currency exchange swings, thanks to rising transaction volumes and increased spending by merchants. Shopify accounted for roughly 10% of all e-commerce spending, and nearly 600 million shoppers purchased products from its growing base of sellers.
It wasn't all good news for the business, though. Shopify struggled to keep spending in line with growth as e-commerce demand reverted to more normal patterns following the pandemic. Operating loss landed at $822 million, or 15% of sales, compared to a profit of $269 million, or 6% of sales, in 2021.
The potential
Shopify has several attractive growth avenues beyond just bringing more merchants to its platform. Management is pushing into dozens of new service lines like payments processing, international marketing, and fulfillment. Shopify's point-of-sale systems are targeting more in-person retailing, too.
This expanding portfolio is allowing the company to raise merchant fees, potentially paving the way toward sustainable profitability. Merchants are "using more of our mission-critical tools to run their businesses," CEO Harley Finkelstein told investors in mid-February.
Wait and see
Yet, most investors will want to take a wait-and-see approach to this stock for now. Shopify's expanding losses in 2022 show how the business might struggle to generate profits in slower-growth environments. It's not clear that merchants will happily pay more for additional services, either.
Shopify's upcoming first-quarter announcement on May 4 will bring clarity to some of these important questions. The company is hoping to show progress at getting back to profitability even as sales trends slow to the high-teen percentage range. Most Wall Street pros are expecting to see revenue expand by about 19% this year to nearly $7 billion.
Shopify's annual revenue could grow much higher over the coming years as commerce levels rise online and in person. But investors are still missing evidence of strong profitability and pricing power. Signs of these factors might start showing up over the next few quarters, beginning with the company's fiscal Q1 report in early May. But until they do, investors will want to look toward other growth stocks as candidates for their retirement portfolios.
