Now the largest company in Canada by market capitalization, Shopify Inc. (TSX:SHOP)(NYSE:SHOP) is on many investor watch lists right now. This is a company which has continued to perform well through a global pandemic many thought would reek havoc on the company’s business. On the contrary, Shopify has seen its growth accelerate and has posted better than expected earnings consistently in recent quarters.
One of the reasons why Shopify is on my watch list right now is the company’s appetite for issuing shares to fund its business. The company has announced its third equity financing in just nine months of late, taking advantage of the elevated share price investors have bestowed upon the company.
As a growth company, and particularly a company that has been opposed to taking on debt to fuel its growth, these moves were perhaps not unexpected. However, any company issuing shares repeatedly ought to be examined by investors, particularly if insider selling is also taking place at the same time. These moves can be signals to the market the company believes its share price is overvalued and may not remain so over the long term.
That said, Shopify is a world-class company operating in a sector which it dominates. The growth prospects of Shopify remain strong, and there’s no call for alarm right now. Investors should just take caution with respect to any company with a valuation multiple as high as Shopify’s right now. If the market corrects, these are the companies with increased potential for an outsized decline.
Invest wisely, my friends.