Shopify (TSX:SHOP) Stock: Will the Crash Continue?

Shopify Inc (TSX:SHOP)(NYSE:SHOP) stock tanked last week. Will the bleeding stop?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shopify (TSX:SHOP)(NYSE:SHOP) continued to crash last week, falling to $1,190 by its close on Friday.  Last week’s losses cap a generally poor month for the stock. As you can see in the Koyfin chart below, it’s been basically in a free fall for most of September.

To an extent, this correction was expected. It was never a secret that SHOP had reached a nosebleed valuation after its Q3 earnings beat. In fact, it had traded at a consistently steep valuation for most of the last five years. Q3, however, took the stock to new heights. It reached not only a record high price, but also an even steeper valuation than normal.

On top of that, there’s the fact that tech stocks in general have been selling off in September. In the rush to get into “pandemic-proof” stocks, investors bid the tech sector up to new heights. This made sense for a while. But eventually, investors started to perceive more value in traditional, beaten-down industries.

Which brings us to today. At $1,190, SHOP is down 20% from its all-time high. It’s still a massive gainer for the year, but if the beating continues, there could be trouble. The only question is whether it will continue. High P/E ratios never stopped tech stocks from rising — just ask Jeff Bezos. But if tech as a sector continues to sell off, it could be bad news for Shopify shareholders.

Why tech is selling off

Ultimately, nobody knows with 100% certainty why an entire sector moves the way it does. With that said, it appears that tech is selling off on valuation concerns. Many of the world’s biggest tech stocks trade at more than 10 times sales. Even “mature” tech stocks like Microsoft are trading at more than 35 times earnings. Amazon’s P/E ratio recently went over 100 again, and Netflix isn’t much lower. Even the historically cheap Apple now has a 32 P/E ratio.

Tech stocks as a class are generally expensive. But now, they’re more expensive relative to earnings than they were a year ago. In part, that appears to be due to the COVID-19 market crash. When the COVID-19 lockdowns hit, traditional industries got crushed. Initially, almost all stocks sold off. But eventually earnings started to come out. It turned out that tech was relatively unscathed. So, investors scrambled out of the battered sectors and into tech. Eventually, though, some really stratospheric valuations started to emerge. In early September, for example, SHOP traded at more than 70 times sales. That couldn’t last forever, and a correction began to take shape.

Strong growth metrics

Despite all of the above, SHOP is still cranking out some impressive growth metrics. In its most recent quarter, it grew sales by 97% year over year. Gross Merchandise Volume climbed 119%, while Merchant Solutions revenue grew 148%. Thanks to these dramatically improved sales figures, SHOP managed to crank out positive GAAP earnings in Q2. If this kind of growth can be maintained, then perhaps SHOP will resume is steady upward climb. We should get word on that shortly: reports suggest that Q3 earnings will be released November 3.

Should you invest $1,000 in Shopify right now?

Before you buy stock in Shopify, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Shopify wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Andrew Button has no position in any of the stocks mentioned. David Gardner owns shares of Amazon, Apple, and Netflix. Tom Gardner owns shares of Netflix and Shopify. The Motley Fool owns shares of and recommends Amazon, Apple, Microsoft, Netflix, Shopify, and Shopify and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

Asset Management
Investing

2 Canadian Value Stocks I’d Buy Now and Hold for a Lifetime

Here are two cheap Canadian stocks investors can buy and hold for outsized gains in 2025 and beyond.

Read more »

tsx today
Stock Market

TSX Today: Why Canadian Stocks Could Fall on Thursday, April 3

TSX stocks may come under pressure today as sharp commodity declines and Trump’s sweeping new tariffs spark fresh concerns over…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Buy the Dip on the Return of Recession Stocks?

If a recession comes back, there are some stocks that could fair well afterwards. And this is one of the…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Retirement

Here’s the Average Canadian TFSA and RRSP at Age 60

Many Canadian retirees have tens of thousands invested in ETFs like the iShares S&P/TSX 60 Index Fund (TSX:XIU).

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

dividend growth for passive income
Investing

5 Canadian Growth Stocks to Buy and Hold for the Next 15 Years

These Canadian stocks have tremendous long-term growth potential, making them five of the best investments you can buy and hold…

Read more »

Man holds Canadian dollars in differing amounts
Stocks for Beginners

Cash Is King? Think Again During Today’s Market Dip

Sure, cash is great, but during a market dip investors may want to consider using some of the cash to…

Read more »

grow money, wealth build
Stocks for Beginners

How I’d Build a $15,000 Portfolio for Income and Growth With Canadian Value Stocks

Looking for some Canadian value stocks to buy without breaking the bank? Here's a trio to consider buying this month.

Read more »