Shopify’s stock has soared 140% in the last two months as many shoppers flock to e-commerce with lockdowns in place.
The stock has risen 4,600% since the stock went public five years ago.
Shopify reported earnings of $470 million in 1Q, 47% higher year-on-year.
Analysts think Shopify is overpriced and shoppers may flock back to the likes of Amazon.
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Shopify overtook Royal Bank of Canada to become the country’s largest company by market cap earlier this month as the stock surged 140% in the last two months alone, and it emerges as one of the biggest winners during the pandemic.
It currently boasts a market cap of 92.3 billion Canadian dollars ($66.4) and has now slipped back to become Canada’s second-largest company by market cap.
Coronavirus has torpedoed economic activity and led most conventional stores to shut down, leaving shoppers to resort to online retailers.
In March, Amazon halted the delivery of some non-essential shipments, a factor which greatly helped the Canadian start-up boost sales.
But the future of stock is far less rosy analysts say.
Stock is overpriced
A number of analysts told Markets Insider Shopify’s stock price is not sustainable even if COVID-19 drags on for many more months.
Craig Kirsner, president of Stuart Estate Planning Wealth Advisors, said: “I 100% believe that companies like Shopify and Zoom are overpriced. They are based on the needs of the world right now and that need will go down once we are past coronavirus.”
He added: “I do believe these companies will be more important going forward. However, they are probably overvalued currently, as most bubble-type investments are.”
Robert R. Johnson, professor of finance at Heider College of Business, Creighton University, said: “The valuation of Shopify (SHOP) is, simply put, ludicrous. It is selling at 49 times sales. Not 49 times earnings, but 49 times sales. On a forward PE basis, it is selling at 5000 times consensus next 12 months earnings.”
Shopify posted earnings of $470 million a 47% increase year on year in its 1Q earnings this month.
Johnson cited advice by iconic fund manager Peter Lynch, who led the behemoth Fidelity Magellan fund, stressing that good investments are not only ones that are great products and services but also those companies that have a sustainable business model.
“In essence, there is no economic moat with Shopify. My advice is for investors to use the products offered by Shopify, just refrain from buying shares of its stock,” Johnson said.
Facebook joined the e-commerce craze on Tuesday through its announcement it is adding shops to its social network and Instagram, its biggest move into e-commerce yet.
Facebook’s partnership with Shopify is a new free tool that helps merchants create a customized online storefront for Facebook and Instagram.
How economies will fare after reopening
Kunal Chopra, chief executive of eTailz, pointed out that the start-up could lose steam if more retailers begin declaring bankruptcies.
“A big driver is whether economy consumer spending may change …read more
Source:: Business Insider