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1 Reason To Avoid Shopify

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Today, I want to show you 1 Reason To Avoid Shopify

1 Reason To Avoid Shopify

It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter with Shopify (SHOP) due to its huge valuation.

As of this writing Shopify is one of the largest ecommerce platforms in the world…

Its platforms allow businesses of all sizes – from one person selling homemade crafts out of their home to huge corporations – sell their products online via their own “online storefront.”

Its market cap is $120 billion.

Which means it’s almost as valuable on the market as the following online and offline giants combined…

  • Target – its worth $76.7 billion
  • Macy’s – $2.1 billion market cap
  • L Brands – $8.2 billion market cap – owner of Victoria’s Secret
  • Bed Bath and Beyond – $1.6 billion market cap
  • eBay – $41.1 billion market cap
    • Combined market cap of the above is $129.7 billion.

Now, what does this really mean though?

Shopify in the last 12 months did total sales of $2.1 billion.

While the other 5 combined did total sales of $135.9 billion in the last 12 months.

In other words, Shopify is worth 60X its sales.

While the other companies combined are worth 1.1X their sales.

This is one illustration of Shopify’s massive valuation.


Its current P/E is unreadable because Shopify’s never earned a net profit as a public company.

Its current P/CF is 1,142.3.

And its current forward P/E is 434.8.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Shopify crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This also means you have a much higher probability of earning higher returns owning its stock over time.  And these combined make the stock a less risky investment.

With Shopify stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

But why is it so overvalued?

Because it’s helping to revolutionize online buying and selling… At a time when people are generally stuck at home and doing their shopping online.

People expect Shopify to continue accelerating the worlds online buying and selling of products.

Because of this people are buying its shares a lot on the hopes of this.  And this is taking its share price far above where it should be based on its current profits… Or lack of profits in Shopify’s case.

Shopify should continue helping people all over the world buy and sell things even after this pandemic is over.  And as a leader in this space it should benefit over time.

But I require as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point.

If you’re buying Shopify stock today there’s zero room for error due to its huge valuation.

For this reason of its huge valuation I recommend you stay far away from investing in Shopify.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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