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Shopify headquarters in Ottawa.Chris Wattie/Reuters

Score one for the real world over the digital economy. On the list of best-performing Canadian stocks over the past five years, TFI International Inc. TFII-T now ranks above Shopify Inc SHOP-T.

The Montreal-based trucking and logistics company has quietly put together a remarkable run, boosted by a shift in consumer spending from services to goods during the COVID-19 pandemic, as well as an enviable track record of lucrative deals.

The company’s stock has posted a return of roughly 350 per cent over the past five years, with dividends boosting that number closer to 400 per cent.

Shopify’s return over the same time now sits at around 300 per cent, which is down from a peak of 1,500 per cent last fall. Concerns over the company’s ability to compete with Inc. AMZN-Q, combined with a widespread sell-off in the e-commerce space, have led to a painful reappraisal of Shopify’s stock.

Shopify cuts 10 per cent of staff as CEO Tobias Lutke apologizes for big bets on e-commerce, admits he ‘got this wrong’

Investors burned by Shopify’s reckoning, however, can still latch on to TFI’s growth story as it aims to become a North American trucking powerhouse, largely through acquisitions.

“They are just wonderful acquirers – right up there with Couche-Tard and Constellation Software,” said Barry Schwartz, chief investment officer at Baskin Wealth Management.

Alimentation Couche-Tard Inc. ATD-T and Constellation Software Inc. CSU-T have both established themselves by continually buying up smaller competitors – a strategy that history has shown to be fraught with risks.

As a serial acquirer expands, the impulse is often to make bigger and riskier deals, until it all comes crashing down. Valeant Pharmaceuticals International Inc. is among the more notorious of Canadian M&A stories gone wrong.

TFI chief executive Alain Bedard, on the other hand, is following a playbook of building market share through disciplined acquisitions that is the hallmark of the highest tier of Canadian consolidators, Mr. Schwartz said.

It helps that TFI is in a highly fragmented industry, as is the case with Constellation Software. Constellation has built up an enormous arsenal of small software companies serving niche markets, having scooped up more than 650 businesses over the years.

Like the software space, the U.S. trucking space consists of thousands of small businesses that make up an enormous industry. There is effectively no end to the targets for an acquirer such as TFI.

The company has purchased more than 100 companies over the past decade-plus and now controls more than 80 subsidiaries.

“They haven’t really overpaid for a company and they’ve managed to pay down their debt fairly quickly off of cash flow from the integration,” said Matco Financial portfolio manager Anil Tahiliani. “So the markets reward them every time they do an acquisition.”

TFI International sees profits leap by two-thirds as trucking demand soars

Last year, TFI landed a major deal when it bought a freight business from United Parcel Service Inc. for US$800-million. It was an unprofitable business essentially used by UPS to generate traffic for its courier segment, and was ripe for a turnaround under the TFI umbrella, Mr. Schwartz said. “They basically stole it.”

TFI’s plan is to make the freight operation more profitable by revamping pricing, improving margins and investing in more efficient vehicles. “The opportunity is significant,” said RBC Dominion Securities analyst Walter Spracklin in a recent note. “The entity is a break-even operation, but with significant scale and breadth.”

The goal is to reduce the segment’s operating margin from 100, meaning revenue is just covering operating expenses, to 80 by 2024. That would amount to a major driver of earnings growth for the company over the next two years, even in the event of a recession.

Already, that key metric has been driven down to 88, according to TFI’s second-quarter financials, which were released three weeks ago. Those results easily blew past analysts’ expectations on a number of fronts, with adjusted earnings beating the consensus estimate by 45 per cent, and management raising its estimates for this full year’s earnings by roughly 20 per cent.

“Those results were almost incomprehensible,” Mr. Schwartz said. “And analysts still haven’t raised their earnings estimates enough.”

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