SHOP Shares Rally 6.5% In A Day, Wait For A Dip To Buy The Stock

We believe there is not much to fear in SHOP stock given its overall Strong operating performance and financial condition. But given its Very High valuation, the stock appears Relatively Expensive. Here is our multi-factor assessment.

SHOP stock has jumped meaningfully recently and we currently find it relatively expensive. While this may feel like an opportunity, there is significant risk in relying on a single stock. On the other hand, there is a huge value to a broader diversified approach. If you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio (HQ) – HQ has outperformed its benchmark – a combination of S&P 500, Russell, and S&P midcap index, and achieved returns exceeding 91% since its inception. Risk management is key – consider, what could long-term portfolio performance be if you blended 10% commodities, 10% gold, and 2% crypto with HQ’s performance metrics.

Let’s get into details of each of the assessed factors but before that, for quick background: With $209 Bil in market cap, Shopify provides a global commerce platform enabling merchants to display, manage, market, and sell products across multiple sales channels.

[1] Valuation Looks Very High

This table highlights how SHOP is valued vs broader market.

[2] Growth Is Very Strong

• Shopify has seen its top line grow at an average rate of 26.0% over the last 3 years
• Its revenues have grown 29% from $7.8 Bil to $10 Bil in the last 12 months
• Also, its quarterly revenues grew 31.1% to $2.7 Bil in the most recent quarter from $2.0 Bil a year ago.

This table highlights how SHOP is growing vs broader market. For more details see: SHOP Revenue Comparison

[3] Profitability Appears Moderate

• SHOP last 12 month operating income was $1.5 Bil representing operating margin of 15.3%
• With cash flow margin of 18.3%, it generated nearly $1.8 Bil in operating cash flow over this period
• For the same period, SHOP generated nearly $2.3 Bil in net income, suggesting net margin of about 23.4%

This table highlights how SHOP profitability vs broader market. For more details see: SHOP Operating Income Comparison

[4] Financial Stability Looks Very Strong

• SHOP Debt was $1.1 Bil at the end of the most recent quarter, while its current Market Cap is $209 Bil. This implies Debt-to-Equity Ratio of 0.5%
• SHOP Cash (including cash equivalents) makes up $5.8 Bil of $15 Bil in total Assets. This yields a Cash-to-Assets Ratio of 40.0%

[4] Downturn Resilience Is Weak

SHOP has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• 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 $161.14 on 3 October 2025 $161.14

 
2020 Covid Pandemic

• 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.
• However, the stock fully recovered to its pre-Crisis peak by 17 April 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read SHOP Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.