The short answer: very carefully. Shopify Inc. (TSX:SHOP)(NYSE:SHOP) is among the most expensive companies globally on various commonly used metrics to track valuations such as the price to sales or price to forward earnings metrics.
This is a pure growth stock for aggressive investors willing to throw away any expectations of meaningful returns in the form of profit for a few years, at the very least. Shopify’s business model has proven to be recession resistant. Many have noted that the massive push to e-commerce has actually spurred a tremendous amount of growth for the company’s business over and above an extremely high growth threshold the company has maintained for some time.
The e-commerce secular trend is among the most powerful in terms of reshaping how we, as consumers, conduct our daily lives. With Shopify now widely considered to be a key pillar of this economic transition, it is easy to see the bull case for owning this stock long term.
That said, as I’ve commented on in the past, even the highest quality companies out there can become overvalued from time to time. At this point in time, it appears clear to me that Shopify’s valuation has gotten ahead of itself.
For those who absolutely must own Shopify stock, I’d suggest nibbling on dips. I believe we will see volatility on the horizon with a pending U.S. election and a hopeful end to this pandemic via a vaccine in the near term.
Invest wisely, my friends.
