Shopify Inc. (TSX:SHOP)(NYSE:SHOP) continues to rock the online marketplace but there are rising worries it has no staying power. The company is a shopper’s delight and a favorite on the TSX. However, can the e-commerce stock sustain momentum or has the price reached a plateau?
The rise of the Ottawa-based company to prominence is phenomenal. It has established unparalleled brand recognition. Retail businesses utilized Shopify’s platform and saw dramatic sales increases. Customers were satisfied with hassle-free shopping. On the stock market, the run-up was so fast that many tech companies were encouraged.
Stock under the microscope Exciting times are ahead in the industry in which Shopify operates. When the stock debuted on the TSX in May 2015, the price opened at $35.50. Today, SHOP is trading at $269.90, which represents a 660.28% rise over that opening price. The stock is very pricey now that prospective investors might not make money anymore.
The stock chart was a sight to behold during the uptrend in 2017 until the descending pattern occurred in 2018. SHOP closed 2018 at $188.79 and has since regained momentum, increasing by 42.96% to its current price. But questions are being raised about whether there’s still room to grow in 2019.
Market outlook At the onset, Shopify was not anticipating explosive business growth. The company only wanted to offer a better way for a business to be created online. Management is just as astounded with the market cap build-up that stands at nearly $30 billion in the present.
The revolution in the retail space will continue, with fundamental changes in the purchasing mechanisms expected. New players and emerging technologies will dictate the direction. Customer behaviour will also be altered once new shopping options are introduced. Thus, fresh enticements are needed to maintain its lofty stature.
Shopify will face stiff competition this year, particularly Facebook Inc (NASDAQ:FB). FB’s Instagram is about to add an in-app checkout feature. With this new option on the platform, users can purchase the products as they see them on the site.
Although only the products of major brands will be on display, the feature will likely expand to the small- and medium-sized businesses and therefore encroach on Shopify’s niche. Up-and-coming merchants might decide to shift for customer convenience. It’s easier to make sales without leaving an app.
The real dilemma Crushing the competition is just one of the many challenges facing Shopify. For investors, the real dilemma is determining the company’s performance and staying power. SHOP charmed the marketplace that the ensuing herd mentality propelled the stock to unprecedented highs. But the situation is precarious now.
The once small-cap growth stock has been transformed to a large-cap stock and the valuations remain preposterous. Shopify is a great success story, but is also a high multiple stock. This implies that when the market gets hit, SHOP would be clobbered.
Spotify’s cloud-based multi-channel e-commerce platform remains the most innovative and compelling to date. However, the stiff price is not an accurate representation of the company’s shaky financial metrics. I’d rather pass up on SHOP in the meantime.
Fool contributor Christopher Liew has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.
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