One of Canada’s top high-flying tech superstars, shares of Shopify Inc. (TSX:SHOP)(NYSE:SHOP) have been on an absolute roll of late. The company’s share price has continued to fly higher, and continues to break all-time highs on a relatively frequent basis. Investor sentiment in companies operating in sectors such as e-commerce with robust long-term growth trends continue to pile into these trades, pushing valuations in these sectors to even higher nosebleed levels.
Do I think companies like Shopify have incredible business models and the growth potential to be game-changing technological gems long-term? Absolutely. That said, I just don’t think the valuation the market is putting on these companies right now represents any sort of reasonable investment thesis for investors looking at companies from a discounted cash flow perspective today.
First of all, it’s difficult to truly measure the future cash flows of companies like Shopify which have only traded publicly for a relatively short amount of time and have not yet turned meaningful profits. Investors are placing increasingly outlandish growth expectations on these companies, with little in the way of risk being factored into these stock prices right now.
I think these world-class companies are great long-term investments, but at these prices, I think sitting on the sidelines right now is the prudent thing to do. If we do see a dip the likes of which we saw in March of last year, investing in such companies could prove to be tenable once again. Until then, I’m going to wait patiently and watch from the sidelines.
Invest wisely, my friends.