Shopify (TSX:SHOP)(NYSE:SHOP) has had another strong year on the markets in 2019 with its share price rising 175%. It's reached a $60-billion valuation as it continues to be one of the most highly valued stocks on the TSX. However, with no earnings and the stock trading at more than 20 times its book value and 42 times its sales, it's going to be no small feat for Shopify to be able to generate similar returns in 2020.
While its sales are still growing at a rate of over 40%, those numbers are coming down and with competition from Facebook (NASDAQ:FB) and Adobe's (NASDAQ:ADBE) Magento providing significant competition for the tech stock, things aren't going to be getting any easier for Shopify. And getting into the fulfillment business is only going to make reaching breakeven less likely in 2020.
Although there's still lots of hype surrounding Shopify, the stock's become a bubble and it may only be a matter of time before it pops.
Investors are paying significant premiums for a company that may run into trouble sooner or later. And investors need only to look to the cannabis sector this year to see how quickly things can turn from optimistic to outright bearish for significantly overpriced stocks.
Shopify has a good business but it's also not worth paying significant multiples for, especially with the company not having a defensible competitive advantage that can keep competitors away. Next year could be a very challenging year for Shopify especially if its sales growth continues to fall. It's a stock that could be due for a significant decline.
