For e-commerce investors, the number of "qualified" options available on the TSX continues to consolidate down to fewer and fewer large and reputable companies. In terms of market size, Shopify Inc. (TSX:SHOP)(NYSE:SHOP) has continued to climb the ranks toward top spot in the Canadian e-commerce market, posting a market capitalization of $12.8 billion, reflecting a share price increase of nearly 125% since the beginning of the year.
With Shopify’s share price now hovering around the $130 level, questions have begun to surface among some analysts as to whether the increase in Shopify’s share price is deserved, given the already enormous growth rates that have been priced into most long-term valuation models used to assess e-commerce companies such as Shopify, or if the recent rise in the stock price of Shopify (and other e-commerce companies for that matter) is more a result of supply and demand fundamentals being skewed presently toward only a handful of issues, providing consistent share price support levels for Shopify et. al.
Valuation multiples have continued to climb in recent years, as investors stockpile cash in equities, due in part to record-low interest rates and a current economic environment favoring equities over other more traditionally stable securities such as bonds. For Shopify, the supply and demand fundamentals are there today; what worries me, however, is the potential for a negative catalyst to wipe away the vast majority of gains investors have seen over the past 12 months, given the tricky growth situation Shopify has found itself in, needing to grow by triple digits year-over-year to continue to wow investors. To that end, I once again recommend caution with this name.
Invest wisely, my friends.
