Shopify's (NYSE:SHOP) merchants generated over $5.1 billion in sales worldwide during this year's Black Friday to Cyber Monday shopping weekend, which set a new record and marked a 76% jump from last year. Sales of apparel and accessories led the way, followed by health and beauty products and home and garden products. Over a million merchants, mainly small and independent brands, served more than 44 million shoppers during the weekend -- up 50% from a year ago.

Shopify's top-selling countries were the U.S., U.K., and Canada, while four markets -- Japan, Italy, Germany, and the U.K. -- generated triple-digit sales growth. Just over two-thirds of those orders were placed on mobile devices, which remains nearly unchanged from the previous year.

Shopify President Harley Finkelstein noted that with the "center of gravity in commerce shifting from in-store to online, the pandemic has accelerated a change we have long anticipated." That acceleration isn't surprising, but it already caused Shopify's stock to more than triple this year. Is this hot e-commerce stock still worth buying at these levels?

A young woman in a shopping cart emerges from a large phone.

Image source: Getty Images.

The pandemic generates strong tailwinds for Shopify

Shopify's e-commerce services help businesses set up online stores, launch marketing campaigns, accept payments, fulfill orders, track inventories, and more. It's a popular option for smaller companies that want to remain independent and don't want to tether themselves to a large online marketplace like Amazon.

Shopify was already firing on all cylinders before the pandemic. Its revenue rose 47% to $1.58 billion in 2019, as its gross merchant volume (GMV), the value of all the products sold on its platform, increased 49% to $61.1 billion.

But after the pandemic started, many businesses were forced to close their physical stores and sell more products online. As a result, Shopify's revenue soared 82% year over year in the first nine months of 2020. Its GMV grew 46% in the first quarter, 119% in the second quarter, and 109% in the third quarter.

Based on that pattern, Shopify's 76% GMV growth during Black Friday and Cyber Monday is impressive, but it still marks a slowdown from its peak GMV growth in the second quarter -- when the pandemic initially forced many businesses to shut down.

Analysts expect Shopify's revenue to rise 81% this year, then grow 33% next year as it faces tougher year-over-year comparisons after the pandemic ends. That's still a robust growth rate, but it could already be baked in for a stock that trades at nearly 40 times next year's sales. By comparison, Amazon is expected to grow its revenue 36% this year and 18% next year, but it trades at less than four times next year's sales.

Shopify's profits are still soaring

Last year, Shopify's adjusted net income declined 22% to $34.3 million as it ramped up its investments and bought 6 River Systems to beef up its new Shopify Fulfillment Network.

A tiny shopping cart filled with credit cards in front of a laptop.

Image source: Getty Images.

But in the first nine months of 2020, it generated an adjusted net profit of $292 million -- compared to a loss of $16 million a year ago -- even as it ramped up its investments. On a GAAP basis, it generated a net profit of $196 million, up from a loss of $126 million a year earlier -- which counters the bearish notion that Shopify is unprofitable and burning cash. 

Shopify ended the third quarter with $6.12 billion in cash, cash equivalents, and marketable securities, up 149% from a year earlier. However, $3.49 billion of that gain came from share and debt offerings throughout the second and third quarters. Excluding the proceeds from those offerings, Shopify's cash, cash equivalents, and marketable securities would have risen just 9%.

Wall Street expects Shopify's adjusted earnings to rise 12-fold this year, but dip 2% next year as the pandemic tailwinds fade. That abrupt slowdown makes Shopify's stock difficult to value, but it still looks frothy at over 340 times next year's earnings. Amazon, which is expected to grow its earnings 52% this year and 30% next year, trades at 70 times next year's earnings.

Don't pay the wrong price for the right company

I still like Shopify as a long-term e-commerce play, and its robust growth throughout the holidays indicates retailers are still shifting away from big marketplaces like Amazon to run their own online stores.

However, its frothy valuations are still hard to justify -- especially as the pandemic passes and leaves it facing tough year-over-year comparisons next year. I'd consider nibbling on Shopify at these levels, but I wouldn't build a bigger position until it cools off.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.