With $160 in hand, investors can buy one whole share of Shopify (SHOP 1.54%), an e-commerce specialist trading at a price point a few dollars lower than that level. Though there are many other stocks in that price range, few are as attractive as Shopify, at least for investors seeking companies with explosive long-term growth potential.
Here is why Shopify is one of the smartest growth stocks to buy with that much money.
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Shopify's latest results were excellent
Shopify went into its latest quarterly update with heightened expectations. The company has been performing so well lately that some of its success seems already baked into its stock price. The e-commerce giant's forward P/E (price-to-earnings) looks high by any standard, especially compared to the 30.6 average for information technology stocks.
In fairness, Shopify hasn't exactly been consistently profitable for a long time, so traditional valuation metrics might not be all that meaningful. Still, there is no question that the market had high expectations. Thankfully, Shopify met them. The company's third-quarter revenue jumped 31.5% year over year to $2.8 billion. That's the highest top-line growth rate it has recorded in a while.
SHOP Revenue (Quarterly YoY Growth) data by YCharts
And the company did so amid the potential impact of tariffs on merchants on its platforms, which could lead to increased costs and decreased gross merchandise volume (GMV) and revenue. GMV actually grew by 32% during the period, landing at $92 billion.
Shopify is navigating these tricky waters better than fine. On the bottom line, the company reported net income of $264 million, well below the $828 million of the year-ago period. However, that was due to the impact of the company's equity investments.
That aside, its net income was $367 million, up from $344 million in the prior-year quarter. Shopify's free cash flow (FCF) moved in the right direction, too, growing 20% year over year to $507 million, although FCF margin slightly decreased from 19% to 18%. Still, overall, it was an excellent quarter for Shopify.
It's not too late to buy the stock
What's admirable about Shopify is everything that's going on behind the scenes. The company made its name as a leader in e-commerce, helping merchants set up online storefronts. But the company has evolved significantly since then and offers businesses a wide array of services, including marketing and advertising, payment processing, cross-selling across social media platforms, fulfillment, and much more. It turns out that having a large pool of companies that rely on Shopify has enabled it to find more ways to monetize them.
NASDAQ: SHOP
Key Data Points
Shopify is still at it. The company has launched a suite of artificial intelligence (AI) services. As Shopify has said, having access to significant data on shopping habits and billions of transactions enables it to craft AI tools that benefit all parties involved. These efforts are having a positive impact on the business. The company said that since January, AI-driven traffic to stores on its platforms has increased sevenfold, while orders made from AI-based searches have increased 11 times.
We are arguably still just beginning the AI revolution, and it's also worth noting that Shopify could build a network effect here to complement the strong switching costs its platform already displays. If AI can grow traffic to its stores and lead to more orders, that's even more data the company can use to fine-tune its AI algorithms, making the platform even more attractive. That's before we even mention the recent deal Shopify made with OpenAI, which will allow its merchants to sell items directly on ChatGPT, potentially further increasing its GMV and revenue.
Doubling down on AI seems like an excellent strategy for a company that has long made it a point to make its clients' lives as easy as possible so they can focus on running their businesses. And with a long runway for e-commerce growth remaining, Shopify could profit from these efforts for years to come. That's why it is an excellent growth stock to buy for $160.
