Growth stocks are back in style these days. Several well-known ones are crushing the market while riding the wave of the artificial intelligence revolution (AI). However, plenty of growth-oriented companies outside of AI are worth investing in. Industries such as e-commerce and fintech have terrific prospects, too, and the leaders in these spaces could deliver outsize returns over the long run.
Let’s consider two growth stocks — one in each industry — that look like excellent buys: Shopify (SHOP -8.19%) and Adyen (ADYE.Y -3.76%).
1. Shopify
Shopify, a company that helps companies create online storefronts, is firing on all cylinders. Since it exited the logistics business last year, Shopify’s business has looked stronger. The sale of its logistics unit did hurt revenue growth (it’s one less source of revenue) for a while, but even in this category, the company is performing well. In the third quarter, Shopify’s top line increased by 26% year over year to $2.2 billion.
The company’s profitability, margins, and free cash flow have been moving in the right direction, too. It’s not surprising, then, that the stock is up substantially in the past year. For the fourth quarter, Shopify projects year-over-year revenue growth in the mid- to high-20% range. But beyond that, the company’s prospects are attractive. Shopify’s main platform benefits from switching costs, while its app store, which features thousands of options, displays the network effect.
These competitive advantages will be crucial for Shopify, which is aiming to be a 100-year-old company one day. The e-commerce specialist is off to a pretty good start, and there is plenty of growth potential in the industry. Purchasing products from foreign countries was challenging before the e-commerce revolution. Now, it isn’t that hard and can take as little as a couple of weeks.
E-commerce opens up a universe of new trade opportunities. Shopify could benefit from this long-term opportunity by helping companies build online storefronts from scratch and providing them with everything they need to run them. That’s why the stock looks so attractive.
2. Adyen
Based in the Netherlands, Adyen is a fintech specialist that provides payment gateways, payment processing, risk management, and more across national borders on a single integrated platform. The company’s shares have been volatile in the past couple of years as it dealt with higher expenses and costs incurred on purpose to invest in its future. However, that led to lower profits and margins than investors expected, especially last year. Still, Adyen is rebounding somewhat this year. In the first half of 2024, the company’s revenue increased by a solid 24% year over year to 913.4 million euros ($959.4 million).
Adyen’s processed volume soared 45% year over year to 619.5 billion euros ($651 billion), while the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was 46%, up from the 43% reported in the year-ago period. One growth potential growth avenue for Adyen is international expansion. The company still makes most of its revenue from its EMEA (Europe, Middle East, and Africa) division.
However, the company’s North America revenue has grown faster than EMEA over the past few years. Further, Adyen continues to expand into new territories. But even in places where it is well established, it sees plenty of growth potential. As the company said in a recent letter to shareholders, “With only single-digit market share in EMEA and North America, there remains extensive ground for us to cover and capitalize on.”
That, combined with the continued growth of the fintech industry, should provide an important tailwind to Adyen. The company also benefits from switching costs. Its customers can’t easily switch to another payment processor without risking disrupting their day-to-day activities. That’ll allow Adyen to remain a leader in fintech for a while while delivering solid returns to its shareholders.
