After dipping more than 15% last week, shares of Shopify Inc. (TSX:SHOP)(NYSE:SHOP) have been on the radar of most investors, as the market continues to attempt to price the high-flying Canadian tech company amid concerns that the company is becoming a "get-rich-quick" scheme, as highlighted in a bearish analyst report from Andrew Left of Citron Research this past week.
Some of the concerns highlighted in the report should indeed be taken seriously, to the chagrin of many investors who have bought into the "high growth, forever" mantra many analysts have attributed to the company’s underlying business model.
Past results aside, the ability of a company to continue to perform at break neck speed indefinitely is something investors need to continue to think critically about. At some point, the growth prospects of a company become unreasonable, the company begins to make promises it cannot keep, or both, and it appears that following this bearish report many investors now have the opportunity to take a harder look at the underlying business model of Shopify and consider whether the tech company is priced appropriately or not.
Tech companies are inherently difficult to place a valuation on, and as such, I typically steer clear of emerging technologies in sectors I don’t understand. For speculators or tech-oriented investors utilizing fancy investment logic, Shopify may be a buy. For traditional valuation-oriented investors like myself, I say "no, thanks."
Invest wisely, my friends.
