As of Wednesday close, shares of Canada-based technology company Shopify Inc. (TSX:SHOP)(NYSE:SHOP) were trading at $185 per share, bringing the year to date increase for this company to more than 45% - and we're not even through with the first quarter yet!
The growth investors who bought into the company's initial public offering (IPO) have seen in less than three years is more than 425%, making Shopify one of the best performing companies on the TSX over that time frame. With the company increasing revenue in the 75% range annually, the current business model employed by Shopify appears to be the envy of tech companies everywhere.
Shopify operates a Software-as-a-Service (SaaS) business model in which businesses are charged a monthly fee to utilize Shopify's platform, with many of the back-end services that would otherwise have to be farmed out to third parties serviced by Shopify's easy to use platform.
The ability of "mom & pop" shops everywhere to have the ability to sell their goods online is a game changer for the rapidly growing e-commerce industry. A boatload of growth is being priced into Shopify's current valuation; that being said, with year over year increases nearing triple digits currently (and not slowing down materially), investors have ascribed higher multiples as revenue growth deceleration has been projected to take longer to materialize.
The technology sector is a difficult one in terms of picking winners vs. losers; picking a winner like Shopify and riding the wave higher appears to have been a very solid strategy for investors thus far. That being said, the current multiple demanded by the market for Shopify's shares is extremely elevated, and investors need to be aware of the risks as well as the rewards with investing in a company such as Shopify.
Invest wisely, my friends.
