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Shopify Stock Price Tumbled From All-Time High; Here is Why

After rallying more than 150% year to date and hitting an all-time high of $400 mark, Shopify (NYSE: SHOP) stock price tumbled amid concerns over lofty valuations and share issuance program. The stock currently trades around 556 times to earnings compared to the industry average of 25.

SHOP Shopify Inc. daily Stock Chart

The substantial growth in Shopify stock price compared to earnings growth has made it’s stock price expensive. Besides higher valuations, the company’s financial numbers and future fundamentals are supporting the upside gains.

The majority of market analysts are optimistic about Shopify stock price upside potential.

Baird, for instance, has set a price target of $410 with an Outperform rating. Analyst Colin Sebastian said, “SHOP is on track to exceed one million merchant customers by year-end and could pass eBay to become North America’s second-largest e-commerce platform, behind Amazon.”

In addition, Rosenblatt analyst Mark Zgutowicz has set a price target of $481. The analyst is optimistic about fulfillment revenue – which he expects to grow from $300M in 2021 to $6B+ in 2025.

In the latest quarter, the company has generated 50% revenue growth from the year-ago period. However, due to aggressive growth plans, the company generated negative operating income. Its net loss for the second quarter stood at $0.26 per share compared to $0.23 per share in the year-ago period.

Our strong performance in the second quarter reflects the success of our ongoing activities and investments to help merchants start selling, sell more, and sell globally,” said Amy Shapero, Shopify’s CFO.

The company expects to generate full-year revenue in the range of $1.53 billion, substantially higher from last year revenue of $1.03 billion. The guidance for GAAP operating loss stands around $145 million to $155 million.

Despite strong financial numbers and rosy outlook, investors reacted negatively to the company’s strategy of offering 1.9M Class A subordinate voting shares. The company is looking to raise capital for business expansion. Overall, several catalysts are supporting Shopify stock price. Therefore, the downside is limited.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.