Want to add a growth stock to your portfolio that could generate huge upside for years to come? Shopify (NYSE: SHOP) is the answer. The company benefits from a structural advantage that is shared by many of the largest companies in the world. And the valuation might surprise you.

The secret to Shopify’s success

Want to invest in stocks that can grow by leaps and bounds for decades? Look for “platform” businesses — those that create foundations upon which other things can be built. Many people don’t realize the power of platforms, even though they facilitate many aspects of daily life.

“Platform businesses are taking over every industry and are already a part of our everyday lives whether we realize it or not,” global consultancy Deloitte explains. “The platform business model does not own the means of production, but rather creates and facilitates the means of connection.”

Consider a company like Meta Platforms, which owns some of the largest social networks in the world, including Facebook, WhatsApp, and Instagram. What does a user experience when using these networks? Mainly other users, and the content that they create. As such, Meta doesn’t create the user experience as much as it allows its users to create experiences for each other.

When done right, platform businesses can grow far larger and faster than the competition. That’s because the company itself doesn’t need to do all the building. The users themselves are, in a way, a giant workforce that contributes as a form of engagement. It’s the reason Facebook’s social networks dominate the space, even if the underlying technology is nothing special.

Shopify takes this platform approach in a slightly different direction. The company’s technology allows individuals and businesses to create online storefronts. Users can begin selling online in minutes, with web design, inventory management, ad spending, payment processing, and a whole host of other critical business services built in. But Shopify also connects with hundreds of other services, including content channels like YouTube and TikTok, advertising platforms like Google Ads and Taboola, and dozens of fulfillment services. Most of these tools weren’t built by Shopify itself — they were built by outside developers who can freely build on Shopify’s platform, monetizing their creations in return.

This platform approach is why Shopify has a commanding market share lead in the U.S. among e-commerce suites. It has thousands of developers building new features for its platform — including a host of next-gen AI features — that should keep its technology ahead of the pack for years to come.

The valuation isn’t what you would expect

Shopify has the most users of any e-commerce platform in the U.S., and that lead attracts more developers, who create greater functionality and contribute to even more long-term user growth. That’s a virtuous cycle that should keep giving for years, if not decades. And the potential addressable market is huge. This year, online spending in the U.S. is expected to reach $1.2 billion, a figure expected to grow to $1.9 trillion by 2029.

What’s the price to buy this high-quality, market-leading platform stock with ample room for long-term growth? The stock is expensive by some metrics, but it’s not as pricey as you’d think. After a sizable correction in recent months, Shopify shares trade at just 11.5 times sales. That’s high compared to most stocks, but a bargain compared to Shopify’s recent history. And revenue growth is still above 20%, meaning the sales multiple gets cheaper and cheaper every year. For example, shares trade at just 8.4 times next year’s forecast sales.

Shopify’s rise is a long-term story. It has the right business model and a head start at capitalizing on a massive, growing market. The premium is worth the risk, but only for patient investors. High-growth stocks like this can move in any direction over the short term, and Shopify’s unpredictable chart is no exception. But in the years ahead, expect Shopify shares to handily outpace the general market.

Should you invest $1,000 in Shopify right now?

Before you buy stock in Shopify, consider this:

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Ryan Vanzo has positions in Shopify. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Shopify. The Motley Fool has a disclosure policy.

2 Reasons to Buy Shopify Stock Like There’s No Tomorrow was originally published by The Motley Fool

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