Investors keep the faith in Shopify ($SHOP) despite losses, drive stock up 20%

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Shopify Inc. ($SHOP) stock is up an impressive 292% over the last five years. We note the stock price is up 20% in the last seven days.

Since the stock has added US$14b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Given that Shopify didn't make a profit in the last twelve months. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case, one does expect good top-line growth.

In the last 5 years Shopify saw its revenue grow at 40% per year. That's well above most pre-profit companies. Meanwhile, its share price performance certainly reflects the strong growth, given the share price grew at 31% per year, compound, during the period. This suggests the market has well and truly recognized the progress the business has made. Shopify seems like a high-growth stock – so growth investors might want to add it to their watchlist.

It is considered positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business.

A Different Perspective

It's good to see that Shopify has rewarded shareholders with a total shareholder return of 39% in the last twelve months. That's better than the annualized return of 31% over half a decade, implying that the company is doing better recently. In the best-case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider, for instance, the ever-present specter of investment risk.