In the technology sector, growth is everything to investors. Attempting to model out the rate of growth at which companies like Amazon.com, Inc. (NASDAQ:AMZN) or Shopify Inc. (TSX:SHOP)(NYSE:SHOP) are able to grow revenue is a difficult task, given the fact that these such companies have been able to grow at rates which are much faster than what most conservative fundamental analysts thought possible in the past.
The new age of tech behemoth investing has made companies like Shopify darlings in Canadian tech investing circles. The company has continued to blow away earnings expectations, growing top line revenue at an out-of-this-world rate. This past quarter, for example, the company reported revenue of $245 million U.S. compared to analyst estimates of $234.9 million U.S. with earnings per share (excluding some items) of $0.02 per share compared to analyst estimates of a loss of -$0.03 per share.
Despite these earnings numbers, shares of Shopify dipped following yet another earnings beat, as analysts and investors continue to question the multiple ascribed to the firm given slowing growth rates among merchant volume (this past quarter the company reported gross merchant volume of $9.1 billion U.S., which was 56% higher than last year, but a slower growth rate than the 64% growth rate the company reported in the first quarter).
When a company is valued at around 19-times estimated full year revenue, the bar is set very high for said company in terms of expectations in meeting a wide range of growth targets. Personally, I believe investors will need to pay far too high of a premium for this stock, and on that fundamental basis, I’m out.
Invest wisely, my friends.
