Making money in the stock market doesn't have to require huge sums or effort. With $100, the right stocks to buy, and the willingness to sit back and hold shares through thick and thin, investors can earn excellent returns over the long run.
However, choosing the right companies to invest in is sometimes the most challenging part of this equation. Thankfully, some stocks look too attractive to pass up. Let's consider one such example today: Shopify (SHOP 3.33%).
Helping power modern commerce
It's practically a necessity today for most businesses to have an online storefront, and Shopify helps them build customized e-commerce stores. Though it's not the only player in this niche, the company has grown rapidly and become one of the leaders because its services are highly competitive. These include:
- the ability to sell products across various platforms, including social media and blogs
- a system designed to help merchants manage and streamline orders
- built-in marketing capabilities
- an app store with thousands of options for further customization
In other words, Shopify wants to give merchants all they need to successfully run an online storefront in one spot.
NASDAQ: SHOP
Key Data Points
The company's strategy has worked well so far. Gross merchandise volume (the value of transactions conducted on its platform) and revenue have grown rapidly. Last year, Shopify's GMV increased by 20% year over year to $235.9 billion and revenue grew 26% year over year to $7.1 billion. The company has had trouble turning in consistent profits in the past but has made tremendous progress on that front.
Last year, the e-commerce specialist got rid of its low-margin logistics business. That helped the company improve key metrics. It had a gross margin of 49.8% last year, versus 49.2% in 2022. Shopify's free cash flow of $905 million in 2023 was also much better than the negative free cash flow of $186 million reported in the year-ago period. It turned a net loss per share of $2.73 in 2022 into net earnings per share of $0.10.
There's still a long runway for growth
The company is moving in the right direction. E-commerce is taking over the world. It's more convenient and substantially cheaper to build an online store than a physical one. It also allows merchants to access a far larger pool of potential customers. Consumers benefit for many of the same reasons. Online merchants often pass on cost savings to their clients, there are many more choices, and it's convenient.
Shopify currently operates in more than 175 countries worldwide. While e-commerce enjoys strong penetration in some parts of the world -- even in the U.S., one of the more advanced markets -- it has only reached about 16% of total retail sales. Most countries where Shopify does business are likely well below that.
The company is looking at a massive worldwide market. It estimates a $404 billion revenue opportunity in the places where it currently does business and has grabbed just a 2% share of this space. Its basic blueprint that has made it so successful so far -- Shopify commands a more than 10% share of the U.S. e-commerce market by GMV -- should also lend itself to success over the long run.
Further, Shopify benefits from switching costs since merchants on its platform can't easily jump ship without risking business disruptions. Its goal is to become a 100-year company.
It's impossible to project what will happen that far ahead, but Shopify has gotten off to a great start. There aren't many better options for investors looking to profit from the rapidly growing e-commerce industry. Shopify's shares are currently trading for just under $82 apiece, having climbed fairly steadily over the past year.
