Shopify’s stock is way too expensive, this investor says

The hockey stick of a chart crafted by e-commerce company Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP) over the last couple of years may be a sight to behold but it’s likely causing equal parts elation among shareholders and panic for investors who feel like they’ve missed the boat.

For those in the latter camp, fund manager Barry Schwartz has some consoling words: this stock is way overbought.

“I like the business idea. I’m not sure that I like it as a stock to buy for my clients because it’s trading at 180x earnings, outrageous valuations,” says Schwartz, chief investment officer at Baskin Wealth Management, to BNN Bloomberg on Friday. “We like good growth stories but we’re always going to miss these companies because our final point on our checklist is, can we buy it at a fair price?”

“We’re willing to pay up —I’ll pay up for Visa, I’ll pay up for Mastercard, I may even pay up for Amazon. But to pay up for Shopify is really hard for us,” he says.

Shopify has been on a tear since late December when the stock stood at $161.56. As of last Friday, SHOP’s share price was $368.05 —that’s a 128 per cent increase in five months.

The company appears to be firing on all cylinders, having reached the $1 billion in sales mark for 2018 and following that up with a first quarter that beat analysts’ estimates for both revenue and earnings. Shopify posted its Q1 on April 30, coming in with a profit of US$0.09 per share on a top line of US$320.5 million. Analysts had been expecting a loss of US$0.05 per share and revenue of US$309.4 million.

On top of the beat, management also increased its 2019 earnings guidance, now calling for adjusted operating income of US$20 million to US$30 million, where before it had predicted US$10 million to US$20 million.

“The information age is rapidly changing how commerce is done and by whom,” said Tobi Lütke, Shopify’s CEO, in a press release. “By harnessing these changes to empower entrepreneurs, Shopify is meeting a need that is not only global and growing, but that is likely to continue growing for the foreseeable future.”

Schwartz says that inflated share price aside, Shopify’s prospects are solid.

“[They have] a clear runway of growth. If you want to sell stuff online, they’re the only game in town,” says Schwartz. “But they’re not profitable and so I assume that at some point in time they’re going to flip the switch and they’re going to start taking a cut of everybody’s profit, and it’s probably going to be a damn good business to be in.”