Has Shopify stock climbed too high, too fast?

The skeptics are coming out of the woodwork on Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) now that the e-commerce company has seen its share price go through the roof yet again.

And while SHOP shareholders are obviously impressed, those of us on the outside should think twice before climbing on board, says Bryden Teich of Avenue Investment.

Shopify’s rise over the past two weeks has been nothing short of breathtaking, as the stock shuffled off the COVID-19-inspired market collapse and sprinted to new heights.

Hovering just under the $900.00 mark for the past few sessions, SHOP has climbed an incredible 87 per cent since April 2 and catapulted itself into becoming the third-largest company on the TSX behind only Royal Bank and TD with a market cap of now over $100 billion.

The high valuation has spooked investors and analysts who say that despite the company’s history of execution and stellar growth prospects, the stock is just too pricey.

Not only that, being an e-commerce platform could be an especially fraught place to be during the current economic downturn, as businesses feel the pain of COVID-19 and social distancing rules which could carry on for months more.

Shopify’s customer base includes small and medium-sized operations that are likely to struggle in the current marketplace, despite the fact that many are online as opposed to bricks and mortar businesses. Shopify is doing what it can to help these businesses, announcing this week cash advances to merchants on its platform through its financing arm, Shopify Capital, offering anywhere between $200 and half a million dollars to businesses on its platform to help them through the economic downturn.

“It’s not a loan. It’s a cash advance, because if you don’t sell anything tomorrow, we’re not taking anything out,” said COO Harley Finkelstein to the Financial Post on Monday.

Teich says the rise in Shopify’s share price is somewhat deceiving, as it doesn’t necessarily imply market confidence in the stock and company.

“It’s not a technology stock that we own. Obviously, it has done very well over the past two or three weeks, it has really rocketed up,” said Teich, portfolio manager at Avenue Investment, who appeared on BNN Bloomberg Wednesday.

“It’s still a good company, it’s just incredibly expensive.”

“The interesting thing that’s going to be happening now is that there are a lot of index owners, people who benchmark themselves against the index, they’re now going to have to own Shopify because of how big it has become. And so for investors who own shares it’s still a good company, it’s just incredibly expensive.”

“But I think that for new investors, getting in here and chasing this momentum, I would be mindful of a lot of market participants who are buying Shopify because they have to rather than it being a statement of it being a good company or not,” he said.

“So investors that aren’t in the name right now should just be a little bit cautious trying to
chase this momentum,” Teich said.

Earlier this month, Shopify suspended its guidance for the upcoming 2020 fiscal year, a move taken by many companies amid COVID-19. Shopify reports its fiscal first quarter earnings on May 6.