I’m selling Shopify shares this week [August 2th], and this is why!

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Jul 31, 2021
  • Shopify's business continues to grow rapidly
  • Shopify reported better than expected second-quarter results this week
  • Shopify seems to be too expensive right now

Shopify Inc. (NYSE: SHOP) shares have advanced more than  30% since the beginning of January 2021, and the current share price stands around $1,499. Shopify’s business continues to grow rapidly, the company reported better than expected second-quarter results this Wednesday, but even this doesn’t justify its current stock price.

Fundamental analysis: Shopify remains the go-to platform for entrepreneurs around the world

Shopify’s business has proven improvements throughout the second fiscal quarter, and the company reported better than expected earnings results this week. Total revenue has increased by 55.4% Y/Y to $1.11 billion, while the GAAP EPS was $6.90 (beats by $6.80).

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Total revenue has increased above the expectations ( +$60 million), and it is important to say that Subscription Solutions revenue increased by 70% to $334.2 million. Subscription Solutions revenue has increased primarily due to more merchants joining the platform, while Merchant Solution’s revenue increased by 52% to $785.2 million.

“Shopify’s momentum continued in our second quarter as strong commerce trends prevailed, and Shopify remains the go-to platform for entrepreneurs around the world, to launch and to grow their businesses as they sell directly to their customers,” said Harley Finkelstein, president of Shopify.

Shopify increased its adjusted operating income forecast and reported that it expects full-year 2021 adjusted operating income to be above the level the company achieved in 2020. The consistent strong execution should drive healthy growth in the next quarter, and the company will continue reinvesting back into its business.

The consensus Wall Street rating on Shopify remains bullish, but Shopify seems to be too expensive right now. Shopify is in a good position to grow its business, but with a $190 billion market capitalization, this stock does not represent an opportunity for long-term investors.

Shopify trades at more than three hundred times TTM EBITDA, the book value per share is around $80, and lots of positive expectations have already been included in the stock price. Shopify has never declared or paid cash dividends, and there are better long-term investment opportunities at the moment.

Technical analysis: $1400 represents the current support level

Technically looking, Shopify shares could advance above the current price levels in August 2021, but the risk/reward ratio is not good for long-term investors.

Data source: tradingview.com

If the price jumps above $1600, the next target could be around $1650, but if the price falls below the $1400 support level, it would be a firm “sell” signal.

Summary

Shopify reported better than expected second-quarter results this Wednesday, total revenue has increased by 55.4% Y/Y, but shares of this company are too expensive right now. The consensus Wall Street rating on Shopify remains bullish, but probably it is not the best moment to invest in shares of this company.

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