Can SHOP outperform the Magnificent Seven in the next 5 years?
Recently, the Magnificent Seven( $Apple(AAPL)$ $Microsoft(MSFT)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Amazon.com(AMZN)$ $Meta Platforms, Inc.(META)$ $Tesla Motors(TSLA)$ $NVIDIA Corp(NVDA)$ )stocks have been attracting a lot of attention, and their share prices have been skyrocketing since the beginning of 2023. Investors appreciate their growth prospects. But that doesn't mean there aren't other places to invest.
Look at $Shopify(SHOP)$. The company recently released its fourth fiscal quarter earnings report for 2023. Investors seemed unhappy with the data, driving its share price fell by double digits, and now 55% lower than its historical high.
Can this beaten-down e-commerce growth stock outperform the Magnificent Seven from now to 2029?
Tremendous Growth Potential
In the current macroeconomic environment, many companies are facing challenges, but Shopify's total sales and year-over-year revenue growth in the fourth fiscal quarter increased by 23% and 24% respectively. However, these numbers have been declining for two consecutive quarters, which may be what investors are worried about.
But as a mainstream e-commerce platform that provides technology infrastructure, software, and services, Shopify still has tremendous growth potential, and online shopping still has a lot of room for expansion. Perhaps more importantly, Shopify plans to seize this opportunity by continuously adding product features.
One of the most notable is AI technology, which can improve the experience for both merchants and shoppers.
It's not surprising that a company in full growth mode doesn't have consistent profitability. But things may be changing. After reporting net income of $718 million in the third fiscal quarter, Shopify′s net income reached $657 million in the final three months of 2023.
Wall Street analysts are hopeful about this. Analysts unanimously expect the compound annual growth rate of adjusted earnings per share to reach 34.6% over the next three years.
A Factor to Keep in Mind
One factor that will have a profound impact on the future returns of Shopify stock is valuation. As of this writing, Shopify's share price has a price-to-sales ratio of 14.1. Although this is a significant discount compared to the historical average of 22.6, the valuation is incredibly high.
Despite the fact that the Magnificent Seven stocks are soaring, their median price-to-earnings ratio is currently 7.4 times, which is on par with Apple's median price-to-earnings ratio. So, Shopify's share price is higher than all but one of the big six stocks. Only Nvidia has a higher price-to-earnings ratio than Shopify.
Shopify has tremendous growth potential, but it probably won't outperform the Magnificent Seven stocks in the next five years.
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