Time To Buy Shopify Stock?
CHINA - 2025/02/13: In this photo illustration, a Shopify logo is displayed on the screen of a ... More smartphone. (Photo Illustration by Sheldon Cooper/SOPA Images/LightRocket via Getty Images)
Shopify (NASDAQ: SHOP) enables businesses to build online storefronts and sell directly to consumers. Its notable clients include Skullcandy, Daily Harvest, and Carrier. Shopify's stock has dropped 14% year-to-date, while the S&P 500 is down 7%, amid a broader market downturn. Despite this, Shopify's financial performance remains strong, with Q4 2024 revenue rising 31% year-over-year (y-o-y) to $2.8 billion and non-GAAP earnings increasing 29% y-o-y to $0.44 per diluted share. Operating expenses as a percentage of revenue are at their lowest since Shopify's 2015 IPO, and the Q4 take rate improved by 12 basis points. Gross merchandise volume increased 24% to $94.5 billion. Shopify's subscription-based revenue model, driven by contract and transaction fees, creates a consistent income stream. Furthermore, its use of AI improves customer experience and helps drive retention, supporting long-term growth.
Shopify's stock seems like a good pick at around $84. Still, while there is little immediate cause for concern with SHOP stock, its high valuation makes it susceptible to negative developments. This conclusion is based on comparing Shopify's valuation with its operational performance in recent years and its financial standing. Our analysis across Growth, Profitability, Financial Stability, and Downturn Resilience reveals a very strong operating profile. For those seeking returns with reduced volatility, the Trefis High-Quality portfolio offers a compelling alternative — having outperformed the S&P 500 with over 91% returns since inception.
When assessing value per dollar of sales or earnings, SHOP stock appears highly overvalued relative to the overall market.
• Shopify's price-to-sales (P/S) ratio is 13.3, compared to 3.2 for the S&P 500
• Its price-to-operating income (P/EBIT) ratio is 109.9, versus 24.3 for the S&P 500
• Its price-to-earnings (P/E) ratio stands at 58.5, compared to 24.3 for the benchmark
Shopify's Revenues have seen substantial growth in recent years.
• Over the last 3 years, Shopify's revenue has grown at an average rate of 24.4% (vs. 6.3% for the S&P 500)
• Revenue rose 25.8% from $7.1 billion to $8.9 billion in the past 12 months (vs. 5.2% for the S&P 500)
• In the most recent quarter, revenue rose 31.2% to $2.8 billion from $2.1 billion a year earlier (vs. 5.0% for the S&P 500)
Shopify's margins are around the median of the companies Trefis covers.
• Shopify's Operating Income over the past four quarters was $1.1 billion, giving it a moderate operating margin of 12.1% (vs. 13.0% for the S&P 500)
• Shopify's Operating Cash Flow was $1.6 billion, with a moderate OCF-to-Sales Ratio of 18.2% (vs. 15.7% for the S&P 500)
Shopify's balance sheet appears very strong.
• With $1.1 billion in debt and a market cap of $118 billion (as of 4/9/2025), Shopify's Debt-to-Equity Ratio is 1.0%(vs. 19.0% for the S&P 500). [Lower is better]
• Cash and equivalents of $5.5 billion out of $14 billion in total assets result in a Cash-to-Assets Ratio of 39.3% (vs. 14.8% for the S&P 500)
SHOP stock has underperformed the S&P 500 during major market pullbacks.
• SHOP stock dropped 84.8% from $169.06 (Nov 19, 2021) to $25.67 (Oct 11, 2022), while the S&P 500 fell 25.4%
• The stock has not yet recovered to its pre-crisis high
• The post-crisis high is $129.31 on Feb 18, 2025, with the stock now trading near $84
• SHOP stock fell 40.7% from $54.32 (Feb 19, 2020) to $32.23 (Mar 16, 2020), while the S&P 500 fell 33.9%
• The stock fully recovered by Apr 17, 2020
Shopify's overall performance across the evaluated metrics is summarized below:
• Growth: Extremely Strong
• Profitability: Neutral
• Financial Stability: Extremely Strong
• Downturn Resilience: Very Weak
• Overall: Very Strong
Despite its very high valuation, SHOP stock appears appealing yet volatile.
If you're not comfortable with the volatility of SHOP stock, consider the Trefis Reinforced Value Portfolio. This strategy, blending large-, mid-, and small-cap stocks, has outperformed its benchmark (a combination of S&P 500, S&P MidCap, and Russell 2000 indices), offering a more adaptive approach to changing market conditions, as shown in the RV Portfolio performance metrics.
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