We recently compiled a list of the 15 Best Growth Stocks to Buy for the Next 5 Years. In this article, we are going to take a look at where Shopify Inc. (NYSE:SHOP) stands against the other growth stocks.
Kevin Mahn, President & CIO at Hennion & Walsh Asset Management, recently appeared on CNBC on January 6 to discuss the current market momentum and emphasize the need for investors to be selective in 2025 to find growth opportunities. He highlighted that while the MAG7 have led the market recently, their leadership may not continue. Mahn referenced historical data, noting that since 1950, there have been nine instances where the market rallied by 20% or more, with the market rising in eight of those cases. However, he pointed out that gains in the following year averaged only 3.6%, indicating a need for careful selection. He also acknowledged recent market trends, including a decline in the S&P 500’s performance and a potential shift in investor sentiment following events like the Santa Claus Rally.
He predicted a path of lower interest rates, expecting 50 basis points of cuts this year instead of the previously anticipated 100 basis points. Mahn suggested that this environment would create favorable conditions for stocks and bonds but urged investors to diversify beyond mega-cap tech stocks into sectors like biotech and aerospace. Earlier on January 3 as well, Mahn noted that after two consecutive years of gains, a third year of strong performance appears unlikely. He remarked that it seems the Grinch got in the way of the Santa Claus rally this year.
He also addressed concerns from investors tempted to time the market or sell their holdings. He warned against trying to time the market, describing it as often futile. Instead, he advocated for rebalancing portfolios to align with long-term goals and risk tolerance. He suggested that the economic landscape is changing, with lower interest rates and stagnant economic growth expected moving forward. Mahn advised investors to take profits from sectors that previously led the market and consider reallocating those funds into different areas poised for future growth. He highlighted biotech as a promising sector, noting bipartisan agreement on the need to lower drug prices. This shift could lead large-cap pharmaceutical companies to seek new revenue sources, making smaller biotech firms attractive.
Methodology
We first sifted through online rankings, and internet lists to compile a list of the top growth stocks to buy for the next 5 years. We then selected the stocks with high 5-year revenue growth and high analysts’ upside potential. From those we picked 15 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An enthusiastic customer completing a purchase and receiving an order confirmation via one of the companies online sales channels.
Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 56
5-Year Revenue CAGR: 42.11%
Upside Potential as of January 15: 16.45%
Shopify Inc. (NYSE:SHOP) is an e-commerce platform that provides a SaaS solution that uses AI to automate tasks and personalize shopping experiences. Its competitive strengths include a user-friendly interface, a vast app store, and a mobile-first approach. It’s expanding its reach into the enterprise market with Shopify Plus. This is a premium platform designed for high-growth businesses and offers advanced features and dedicated support.
In the third quarter of 2024, the company’s GMV (gross merchandise value) was up 24%, marking five consecutive quarters of 20%+ growth. This was driven by factors like international expansion, offline sales growth, and new merchant additions. Several AI-driven initiatives contributed to this growth. For instance, AI drives international expansion through features like automated VAT calculations and cross-border compliance within Shopify Tax.
Similarly, Shopify Flow has new AI-powered features that empower merchants with enhanced automation capabilities that streamline workflows. Shopify Inbox has AI-powered reply suggestions that improve customer service response times and boost conversion rates. Loop Capital analyst Anthony Chukumba believes that the company’s extensive use of AI across its platform is driving growth and margin expansion. He upgraded Shopify Inc. (NYSE:SHOP) to Buy on 6 December 2024, raising the price target from $110 to $140.
In FQ4 2024, the company’s revenue growth projection is mid-to-high 20% range year-over-year, driven by ongoing GMV strength. RiverPark Large Growth Fund increased its position in Shopify Inc. (NYSE:SHOP) following GMV results. It’s well-positioned for continued growth driven by e-commerce expansion and new product offerings. It stated the following in its Q3 2024 investor letter:
“Shopify Inc. (NYSE:SHOP): Shopify was a top contributor in the third quarter following a strong second quarter earnings report that included better than expected revenue growth and substantial margin expansion. Gross merchandise value (the value of all items sold on the platform) growth of 22% was three percentage points above investor estimates, revenue of $2.0 billion was $50 million better and free cash flow of $333 million was $80 million better. A combination of new merchants to the company’s platform, increased adoption of SHOP’s offerings by existing merchants, and e-commerce market share gains are driving this revenue growth and profitability.
Last year, 10% of US retail e-commerce sales flowed through SHOP, second only to Amazon, and the company is still enjoying significant tailwinds as retail merchants of all sizes adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services, such as its digital wallet Shop Pay, should continue to drive revenue growth of more than 20% per year over the next several years, accompanied by re-acceleration of operating margin growth and FCF generation.”
Overall SHOP ranks 11th on our list of the best growth stocks to buy for the next 5 years. As we acknowledge the growth potential of SHOP as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
