SHOP:CC - Better Stock: Shopify or Constellation Software?
2024-03-08 16:50:00 ET
Tech stocks continue to dominate the landscape for investors in most markets around the world. Indeed, the growth of many high-flying (and high-valuation) technology companies leads to higher valuations, but this is the sector investors have seen the most growth in recent years.
Interestingly, the Canadian tech sector is often overlooked, given the relatively resource and financials-heavy nature of the TSX. That said, there are two top TSX tech stocks I think are worth diving into and comparing.
Let’s do just that!
Shopify
Shopify ( TSX:SHOP ) is a leader in the global e-commerce market, offering subscription solutions and merchant solutions to small and midsize companies. The company allows the conducting of various e-commerce activities efficiently.
During the last quarter of 2023, the company increased its revenue to $2.1 billion — a 24% increase from 2022. Shopify reported 30% year-over-year growth in revenue after adjusting the logistics business sales. These sorts of recent results highlight the company’s effective growth strategy and its reaccelerating growth as 2021 comps are now behind us.
Shopify’s wide range of products and services can cater to most businesses. Those ranging from entrepreneurs to large-cap companies use Shopify’s services, with the company seeing increased market share in most of its segments. Since its listing on the Toronto Stock Exchange in May 2005, the company’s stock has gained approximately 3,000%. Nevertheless, SHOP stock is currency sitting around 50% lower than its all-time high.
Hence, to improve the share price, the company aims to grow its revenue at a low twenties percentage range for the foreseeable future. Management also expects gross margins to rise 150 basis points in the first quarter of 2024 over the last quarter of 2023. If these targets can be hit, there’s plenty of more upside likely with Shopify this year and beyond.
Constellation Software
Constellation Software ( TSX:CSU ) is one of the largest tech companies in Canada, known for developing and customizing software solutions for private and public companies. The company acquires, manages and builds vertical-specific businesses. In addition, Constellation’s portfolio companies span various markets, such as credit unions, communications, auto clubs, tour operators, etc.
A high-growth tech company focused on consolidating the rather fragmented software sector in North America, Constellation’s long-term growth chart is a thing of beauty to behold. Indeed, Constellation has done a great job of buying high-growth software companies and integrating them into the company’s portfolio. This long-term growth-by-acquisition strategy has continued to pay off and provides the kind of robust growth investors continue to look for from this behemoth.
Notably, Constellation Software’s stock price has been on a tear this year, surging more than 20% over the span of just a couple of months. Analysts expect the company to grow its earnings per share by around 38% over the next two years, providing fundamental reasons to own this stock despite its rather high valuation. For long-term investors, Constellation remains one of my top picks, even at these astronomical levels.
Bottom line
It’s my view that Constellation may be the better longer-term pick for most growth investors, given the company’s historical performance and its steady and consistent growth-by-acquisition business model. However, investors with a shorter time frame looking to play near-term secular tailwinds can’t go wrong owning Shopify.
Ultimately, both stocks can provide solid portfolio positioning toward growth in this current bull market. It really depends on an investor’s individual time horizon with respect to which company is chosen to represent the Canadian tech sector, in my view.
The post Better Stock: Shopify or Constellation Software? appeared first on The Motley Fool Canada .
Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy .
2024