Despite Being One of the Best Companies on the TSX, This Stock is Still too Expensive for My Taste

Despite Being One of the Best Companies on the TSX, This Stock is Still too Expensive for My Taste

Canadian technology mega cap company Shopify Inc. (TSX:SHOP)(NYSE:SHOP) continues to be one of the best performers on the TSX. I have to hand it to Shopify, this company’s top and bottom line growth continues to be out-of-this-world great. I don’t expect this to stop any time soon, but I do still have a great amount of pause when it comes to this stock’s current valuation.

Even the greatest companies can be overvalued from time to time. When growth stocks have such high levels of growth priced in at a given point in time, risks related to a given company failing to meet these expectations over any given period of time could result in a given stock falling back to earth. At approximately 60-times sales, based on the company’s current book of business, it would take 60 years of revenue just to be paid back one’s investment. This is far too steep for any investor focused on fundamentals right now.

The momentum trade is alive and well. I do think that as more capital flows into equities from fixed income portfolios, we could see risk assets continue to appreciate. That said, at some level, investors will be undoubtedly forced to look at the numbers and consider if investing in stocks with sky-high valuations makes sense. Conservative long-term investors would be best suited to stay the course and stay within one’s risk tolerance level – deviating from any strategy can have painful results over the long-term.

Invest wisely, my friends.