Shopify (SHOP 1.76%) stock is up almost 100% this year. Investors can’t seem to get enough of this top e-commerce stock despite its high price tag. But it would still have a long ways to go to turn an investment of $10,000 into a cool $1 million. Does it have what it takes? And should you buy it now?
Why investors are enamored with Shopify
Shopify already processes a similar amount of gross merchandise volume to Amazon, at $56 billion in the 2023 third quarter. The pandemic was a watershed moment for the company, which historically hosted an e-commerce platform for the little guy but has increasingly turned its attentions to large, enterprise businesses.
The pandemic was integral to its dominance in e-commerce since small businesses, especially those that don’t sell essentials, had to immediately get online to survive store closures. They came in droves to Shopify, which is one of the easiest ways to get a complete web package with full e-commerce services but each store’s own branding, concept, and individual features.
That led to accelerating growth, scale, and profits for Shopify. And while many retailers are dealing with inflation-induced challenges, and specifically e-commerce retailers are struggling with a return to physical store shopping, Shopify has continued to report double-digit growth. Sales increased 25% over last year in the third quarter of 2023.
Even more compelling to its story is the expected increase in e-commerce shopping, which is expected to outstrip total retail sales increases over the next few years. According to Statista, retail sales are expected to expand at a compound annual growth rate (CAGR) of around 4.5% through 2025, while e-commerce sales are expected to increase at a CAGR of nearly 10% through 2028, or more than double. As much as Shopify is crushing it right now, there’s strong reason to suggest it can keep it up for years.
That’s because it consistently ups its game and leverages its platform to offer new services that keep merchants coming. One example is Shopify Magic, a generative artificial intelligence (AI) solution that can create branding campaigns and marketing materials based on prompts. It recently signed deals with major e-commerce retailers like Pucci and Toms; yet, it’s keeping up its efforts to recruit the small businesses that are the bread and butter of its business.
Turning $10,000 into $1 million is a tall order
Turning $10,000 into $1 million means increasing the initial investment 100-fold, or by 10,000%. That’s a huge lift for even the most incredible stock, and would likely take many years. Shopify’s stock has gained a bit more than 2,500% in its lifetime as a stock over the past eight years. However, it’s down nearly 60% from its highs in 2021.
Investors are demonstrating strong confidence in its chances to get back there, but even then, it would have gained about 5,000% over its lifetime. So 10,000% requires no small dose of faith and optimism.
Normally, I would walk you through the mechanism for how a stock could reach a certain price. But here it just doesn’t look feasible. Shopify’s market cap today is $88 billion, and increasing 10,000% would propel it to $880 trillion! The highest market cap today is Apple, at nearly $3 trillion. At the current price, I don’t think Shopify stock can gain 10,000%, under even the most optimistic conditions.
Should you buy Shopify stock anyway?
There are stocks that have gained 10,000% and more, such as Amazon and Apple. However, you would have had to invest much earlier in the game to benefit from that kind of gain. Both remain good investments, but at current prices don’t offer the same high growth opportunities.
You would have to find other, early-stage opportunities to 100x your money than Shopify, which already has a large market capitalization.
If you see Shopify’s potential, you can still include it in a diversified portfolio that you add to over time, and that could help you become a millionaire. However, I would suggest caution with Shopify stock right now since it trades at a rich valuation of 13 times trailing-12-month sales. That doesn’t leave much wiggle room. I would wait for a more attractive entry point before buying shares.
