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Why Shopify Inc. Stock Tumbled Today

By Jeremy Bowman – Nov 19, 2018 at 5:45PM

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Shares of the e-commerce software specialist got dragged down with the broader sell-off in tech stocks. Here's what you need to know.

What happened

Shares of Shopify Inc. (SHOP -1.30%) sold off sharply today, tracking with the broader market as tech stocks, in particular, got hammered. The Nasdaq finished down 3%, dragging Shopify with it. Although there was no specific news out on Shopify, the cloud-based e-commerce facilitator still closed down 11.4%.

A red arrow goes down, then up, then down again.

Image source: Getty Images.

So what 

Tech stocks headed lower due to ongoing trade woes with China and news that Apple was cutting iPhone production, which caused shares of chipmakers and suppliers to fall along with it. The broader tech sector also sold off, as many investors believe it's overvalued as big tech stocks like the FANG group have outperformed in recent years. 

Though Shopify isn't directly affected by the Apple news, and trade tensions with China could even be good for the e-commerce specialist as Chinese online vendors have benefited from abnormally low shipping rates that could change, Shopify nonetheless got caught up in the sell-off. 

Shares of the fast-growing cloud company have continued to rise this year, up 34% year to date, despite almost no profits. With interest rates rising, investors have grown wary of high-priced growth stocks with no profits, and many companies, including Shopify, have fallen sharply in the sell-off over the last several weeks.

Now what 

For long-term investors, there's no reason to change your investing thesis despite today's drop. Shopify remains a strong business with revenue surging 58% in its most recent quarter, and it should have a rewarding holiday season as consumer confidence is near all-time highs and online shopping surges this time of year. 

Shopify shares could easily fall further as the stock trades at a price-to-sales ratio of 15 with essentially no profits. If the Nasdaq continues to slide, Shopify is likely to go with it. However, as long as the company continues to put up strong top-line growth numbers, investors should eventually be rewarded, especially considering the long-term opportunity in e-commerce.

Jeremy Bowman owns shares of Shopify. The Motley Fool owns shares of and recommends Apple and Shopify. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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