Things To Be Wary Of When Buying Shopify Stock
Shopify (NASDAQ: SHOP), empowers businesses to create their own online stores and sell directly to customers. Notable clients include Skullcandy, Daily Harvest, and Carrier. Shopify’s stock has declined by 20% year-to-date, compared to a 10% decline in the S&P 500, amid the broader market sell-off. Despite this, the company’s financials demonstrate resilience, with Q4 2024 revenue growing 31% year-over-year (y-o-y) to $2.8 billion and non-GAAP earnings increasing 29% y-o-y to $0.44 per diluted share. Shopify has achieved improved efficiency, with operating expenses as a percentage of revenue reaching their lowest level since its IPO in 2015, and a 12 basis point increase in take rate in Q4. The company’s gross merchandise volume grew 24% to $94.5 billion, and its recurring revenue model, driven by contractual subscription fees and per-transaction fees, provides a stable revenue stream. Additionally, Shopify’s integration of AI enhances the shopper experience and supports customer retention, positioning the company for long-term growth.
The company’s stock looks like a good pick at around $85. However, we believe there is minimal cause for concern with SHOP stock, which makes it attractive but highly sensitive to adverse events, as its current valuation is exceptionally high. We arrive at our conclusion by comparing the current valuation of SHOP stock with its operating performance over the recent years, as well as its current and historical financial condition. Our analysis of Shopify along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a very strong operating performance and financial condition, as detailed below. That said, if you seek upside with lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
How does Shopify’s valuation look vs. the S&P 500?
Going by what you pay per dollar of sales or profit, SHOP stock looks very expensive compared to the broader market.
• Shopify has a price-to-sales (P/S) ratio of 13.3 vs. a figure of 3.2 for the S&P 500
• Additionally, the company’s price-to-operating income (P/EBIT) ratio is 109.9 compared to 24.3 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 58.5 vs. the benchmark’s 24.3
How have Shopify’s revenues grown over recent years?
Shopify’s Revenues have grown considerably over recent years.
• Shopify has seen its top line grow at an average rate of 24.4% over the last 3 years (vs. increase of 6.3% for S&P 500)
• Its revenues have grown 25.8% from $7.1 Bil to $8.9 Bil in the last 12 months (vs. growth of 5.2% for S&P 500)
• Also, its quarterly revenues grew 31.2% to $2.8 Bil in the most recent quarter from $2.1 Bil a year ago (vs. 5.0% improvement for S&P 500)
How profitable is Shopify?
Shopify’s profit margins are around the median level for companies in the Trefis coverage universe.
• Shopify’s Operating Income over the last four quarters was $1.1 Bil, which represents a moderate Operating Margin of 12.1% (vs. 13.0% for S&P 500)
• Shopify’s Operating Cash Flow (OCF) over this period was $1.6 Bil, pointing to a moderate OCF-to-Sales Ratio of 18.2% (vs. 15.7% for S&P 500)
Does Shopify look financially stable?
Shopify’s balance sheet looks very strong.
• Shopify’s Debt figure was $1.1 Bil at the end of the most recent quarter, while its market capitalization is $118 Bil (as of 4/9/2025). This implies a very strong Debt-to-Equity Ratio of 1.0% (vs. 19.0% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $5.5 Bil of the $14 Bil in Total Assets for Shopify. This yields a very strong Cash-to-Assets Ratio of 39.3% (vs. 14.8% for S&P 500)
How resilient is SHOP stock during a downturn?
SHOP stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• SHOP stock fell 84.8% from a high of $169.06 on 19 November 2021 to $25.67 on 11 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $129.31 on 18 February 2025 and currently trades at around $85
Covid Pandemic (2020)
• SHOP stock fell 40.7% from a high of $54.32 on 19 February 2020 to $32.23 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 17 April 2020
Putting all the pieces together: What it means for SHOP stock
In summary, Shopify’s performance across the parameters detailed above are as follows:
• Growth: Extremely Strong
• Profitability: Neutral
• Financial Stability: Extremely Strong
• Downturn Resilience: Very Weak
• Overall: Very Strong
Hence, despite its extremely high valuation, the stock appears attractive but volatile.
Not too happy about the volatile nature of SHOP stock? You could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
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