A purveyor of turnkey e-commerce solutions for those looking to put their business online amid the Covid-19 pandemic, or simply transition completely from a bricks-and-mortar retailer to an online transactor, Shopify Inc. (TSX:SHOP)(NYSE:SHOP) has unsurprisingly seen its share price skyrocket higher. This company has become the most valuable in Canada on a market capitalization basis and has not slowed down its growth path.
This valuation is driven by absolutely ridiculous levels of growth which have not only been maintained and met analyst expectations but have far exceeded the expectations of everyone following Shopify. This has resulted in what many are now dubbing as the most expensive stock in the universe, given the forward earnings that are being priced in from today’s levels (not yet breakeven on a full-year basis). This has some believing this meteoric rise could be similar to that of other Canadian growth gems that have since fizzled off into the sunset. Only time will tell.
My take on Shopify is that this is a stock no fundamental long-term investor can own on the basis of its valuation alone. One must keep in mind that the valuation of any company should be equivalent to the present value of all future cash flows, discounted to today. One must either have an extremely low discount rate or a much higher growth rate plugged into their model for Shopify stock to make sense. This is not a game I intend to play. Ever.
Invest wisely, my friends.