1 Magnificent Growth Stock to Buy Hand Over Fist Before It Is Too Late

Shopify (SHOP 4.90%) stock set the market on fire this year, with terrific gains of 82% so far, and a nice chunk of that jump came after the e-commerce platform provider released its first-quarter 2023 results on May 4.

Share prices of the company surged over 25% in a single session as its revenue and earnings blew past Wall Street's expectations. Shopify's revenue increased 25% over the prior-year period to $1.5 billion, beating the consensus estimate of $1.4 billion. It also posted adjusted earnings of $0.01 per share for the quarter, surprising analysts who would have settled for a loss of $0.04 per share. The bottom-line performance also showed remarkable improvement over the year-ago period when Shopify posted a net loss of $1.17 per share.

More importantly, Shopify's outlook suggests its momentum is here to stay. Let's look at the reasons investors who haven't bought this hot e-commerce stock yet should consider doing so before it flies higher.

Shopify's focus on its core business will be a tailwind

Shopify allows merchants to set up, manage, and grow their businesses online. The Canadian company offers multiple solutions, including building an online store, giving merchants access to capital, finding new customers through its advertisement platform, collecting payments, and even selling internationally.

Shopify points out that there is a huge market for its platform. The company claimed that its total addressable market was worth a whopping $160 billion last year, meaning it's scratching the surface of a tremendous growth opportunity. This massive market also explains why Shopify's revenue has been increasing at a fast clip.

SHOP Revenue (TTM) data by YCharts. TTM = trailing 12 months.

The company is now increasing its focus on building software solutions for the e-commerce market, which explains its decision to sell its logistics business. Shopify acquired logistics provider Deliverr in July last year for $2.1 billion but is now selling it to Flexport, a supply chain management and logistics company reportedly valued at $8 billion. Shopify took a 13% stake in Flexport, and the latter will become its preferred logistics partner.

Shopify management points out that the company's decision to exit the logistics business will allow it to focus on its core business. KeyBanc Capital Markets analyst Josh Beck believes the move will also enable Shopify to increase its fulfillment options -- which isn't surprising, given Flexport's wide network spans 89 countries and allows customers to ship to any port across the globe.

Additionally, the divestment is expected to impact Shopify's margin profile positively. Beck has raised Shopify's earnings before interest and taxes (EBIT) estimate to $305 million for 2023 from a prior forecast for a loss of $70 million. Next year, the company's EBIT is expected to surge to $450 million, which KeyBanc's analyst had previously anticipated would come in at a negative $79 million.

Moreover, Shopify expects to achieve positive free cash flow in each quarter this year. Meanwhile, Shopify's revenue growth is expected to accelerate -- not surprising, considering the huge addressable opportunity the company is sitting on and that it's doubling down on its core business of offering merchant solutions.

Data source: YCharts. YOY = Year over year.

It isn't too late to buy the stock

Shopify's outstanding surge this year made the stock expensive. It is now trading at 14 times sales compared to 8 times sales at the end of 2022. That's much higher than the S&P 500's price-to-sales ratio of 2.4.

But investors looking for a growth stock in the technology sector may find Shopify an attractive bet. That's because its current sales multiple is significantly lower than the five-year average of 30, and its top-line growth is expected to accelerate. What's more, the company is expected to clock 44% annual earnings growth over the next five years, suggesting its expensive valuation is deserved. All this indicates that Shopify stock could keep soaring.

The previous table shows that Shopify's revenue could hit $10 billion in 2025. If Shopify continues to trade at 13 times sales, thanks to a potential improvement in its earnings and faster top-line growth, its market cap could hit $130 billion. That would represent an impressive upside of nearly 60% from the company's current market cap of $82 billion. As such, investors looking to buy a hot growth stock should consider buying Shopify hand over fist before it jumps higher.