Shopify returned to the top of the TSX. Perhaps it belongs there

Globe and Mail

2 days ago

When Shopify Inc.'s SHOP-T share price rallied earlier this month on upbeat quarterly financial results, the e-commerce software giant moved past Royal Bank of Canada to take the top spot, if only briefly, as Canada's most valuable company.
Uh oh?
Anyone who has followed the comings and goings of Canadian mega-cap stocks might have noticed a peculiar trend: Usurpers to RBC's top-dog status over the years tend to fare poorly soon after they ascend to the top rung of the S&P/TSX Composite Index.
Nortel Networks Inc., Research In Motion Ltd. (now BlackBerry Ltd.), Valeant Pharmaceuticals International Inc. (now Bausch Health Cos. Inc.), Barrick Gold Corp. (now Barrick Mining Corp.) and Potash Corp. of Saskatchewan Inc. (now part of Nutrien Ltd.) all hit No. 1 at one point or another over the past 25 years, only to slump soon after.
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The reason is clear: While RBC is a steady monster of a stock that reflects the North American economy, challengers tend to be flavours of the month.
The takeaway for investors is also clear: Buy the monster, sell the flavours.
But Shopify offers an intriguing challenge to the pattern, given that this isn't the stock's first appearance at the top of the Canadian benchmark.
It first moved past RBC in 2020, when online retailing looked like one of the few promising bets during pandemic lockdowns, while the business of bank lending appeared fragile.
Predictably, Shopify then followed the pattern established by other companies that had triumphed over RBC. The stock slumped sharply over an 11-month period between 2021 and 2022 and fell down the ranks of Canada's most valuable companies.
Shopify's return to the top of the TSX follows a resounding 470-per-cent rally from the stock's 2022 low, bringing the price close to a new record high this week before a slight dip on Thursday and Friday.
The company was worth $269-billion on Wednesday, based on the combined value of its outstanding shares. That was about $5-billion more than RBC's market capitalization.
RBC moved above Shopify as the week wound down.
Nonetheless, Shopify's impressive rebound suggests that the company may have the sort of staying power that other usurpers have lacked, underpinned by continuous expansion, strong growth prospects and upbeat financial results.
In its second results, released Aug. 6, revenue increased 31 per cent over the same period last year, to US$2.68-billion. That marks a notable acceleration from 21-per-cent growth last year.
The results beat analysts' estimates and easily outpaced the growth of e-commerce sales, suggesting that Shopify is grabbing a bigger share of a market estimated to be worth about US$850-billion, according to Todd Coupland, an analyst at CIBC Capital Markets.
If Shopify can hold on to its premium stock valuation and continue to post strong growth, the company's market cap could rise another 30 per cent within a year, based on Mr. Coupland's share price target for the next 12 months.
That could push the company ahead of RBC again unless the lumbering banking giant can deliver decent gains of its own.
That may not be an easy task for RBC, though.
Canadian bank stocks are already looking fully valued. The Big Six banks, on average, have gained more than 14 per cent so far this year, slightly outperforming the S&P/TSX Composite Index.
Although RBC has lagged most of its peers in 2025, the share price hit a record high this week.
The bank stock also looks a tad pricey, especially when you consider that U.S. tariffs and Canadian job losses in July are raising concerns about the economy.
The stock, though cheap next to Shopify, trades at 13.6-times estimated earnings, according to data from S&P Global Market Intelligence. That's above the 10-year average price-to-earnings ratio of 11.76 and just shy of a high of 14.11 over this period.
So where does that leave investors?
Some observers are growing increasingly concerned about the broader stock market, which appears to be blissfully ignoring high valuations and the economic risks associated with tariffs, U.S. President Donald Trump's interference with monetary policy and his refusal to accept unflattering employment data.
Shopify's explosive move to the top of Canada's benchmark, which follows renewed interest over the past few months in tech stocks and the lofty promise of artificial intelligence, might fit with the market-gone-crazy narrative.
Then again, RBC's climb into record-high territory also feeds into concerns that the stock market is fully valued, at best.
Normally, Shopify's rise to the top of the TSX would be a time to reflect on whether the stock is flying too high. Its brief return, though, suggests something else entirely: Perhaps the stock belongs there.