Shopify Inc (TSX:SHOP)(NYSE:SHOP) has been one of the best stocks on the TSX this year. Its share price has more than doubled since January and at over $400 it continues to rise in value.
The problem, however, is that it’s also getting more and more overvalued. Investors shouldn’t ignore the fact that the company is unprofitable and its growth rate has been declining for multiple quarters.
The stock is at risk of seeing a correction soon, especially if in its upcoming earnings losses continue to mount. Investors might be better off looking at a growth stock that is a better value buy instead.
Air Canada (TSX:AC) has achieved similar returns to Shopify over the past year and has even seen a strong correlation to the stock, at around 0.80.
Unlike Shopify, however, Air Canada has turned profits and currently trades at a price-to-earnings ratio of 16. As long as the economy continues to be strong, we’ll see more travelers booking flights and driving demand up for Air Canada flights. And now with rival WestJet going private and perhaps being even more profit-oriented, there might be room for Air Canada to raise its prices and generate even more sales growth in its top line.
Air Canada also has a big competitive advantage in its industry as there are significant barriers to entry. That has enabled the airline to dominate the market as it faces fewer risks compared to Shopify where the company is facing growing competition from Instagram and Magento.
In both the short term and long term, Air Canada is a much more stable buy for growth and value investors.
