Shopify stock: think about investing?

July 5, 2020

Here is the article. 

Over the past five years, Shopify (TSX:SHOP)(NYSE:SHOP) stock has made many investors wealthy. On its first day of trading, it closed for $34,94. As of this writing, it traded for $1,242. That’s a 3,456% return.

If you’d invested in SHOP on the date of its IPO and held until today, you’d have over $300,000 in the bank. This is easily one of the best returns you could have realized investing in TSX stocks over the past decade. While cannabis stocks also achieved high returns in the early days, their bubble deflated long ago. SHOP, however, is still going strong.

An extremely expensive stock

One fact that could make a bearish case for Shopify is the stock’s valuation. At current prices, SHOP trades at 85 times sales and 47 times book value. These are both extremely high ratios. If Shopify didn’t see any revenue growth, then it would take 85 years to pay for the company out of its own sales. Of course, the company is seeing revenue growth, but the level of growth we’re seeing now won’t last forever. If the company slows down soon, then it’s current valuation will be impossible to justify.