Given its strong sales growth trends, Shopify (SHOP -1.11%) stock might be an excellent deal right now. The e-commerce infrastructure provider is valued less optimistically than it was before the pandemic struck, despite market share gains and an expanding subscription services platform.

The bullish investment thesis depends on that membership revenue pushing profitability higher even as Shopify handles a larger proportion of e-commerce transactions. Let's take a closer look at the prospects for this optimistic scenario playing out.

Solid growth

It's true that Shopify isn't operating at nearly the level that management had hoped it would reach after projecting out sky-high growth rates from earlier phases of the pandemic. The volume of merchandise sold through its platform this past quarter was up just 17% after accounting for currency swings as consumers became less interested in e-commerce.

The wider growth picture is encouraging, though. Shopify's payments volume is expanding quickly, up 51% in the fourth quarter. The company also booked solid increases to its subscription and platform fees, which should rise even faster in 2023 thanks to its recent price increases.

Troubles ahead

Yet there are several troubling signs about the business, too. The payments platform carries lower margins, and growth there is contributing to a big drop in overall profitability. Shopify faces an expanding list of competitors who are all eager to attract merchants, including Amazon and Walmart.

Toss in the fact that the company is losing money, and it's easier to see why Wall Street has become more cautious about its prospects. Operating loss in 2022 was 11% of revenue compared to a 1% profit a year earlier.

SHOP Operating Margin (TTM) Chart

SHOP Operating Margin (TTM) data by YCharts

In that context, it's understandable that Shopify's valuation has plummeted since early 2022. You can buy shares for less than 10 times sales right now compared to the over 60 that investors were paying at a few points over the last three years.

That discount might seem compelling, but caution is warranted. You can own Microsoft stock for about the same 9.5 times sales, for example. That purchase involves a highly profitable business with attractive growth opportunities and plenty of cash that would see the company through just about any selling environment that shareholders can foresee.

It wouldn't involve the type of risk you'd take on by owning Shopify and seeing its turnaround plan falter.

Stay tuned

On the bright side, the company's wider growth ambitions seem achievable. Shopify can meaningfully improve on the roughly 10% market share it controls of e-commerce in the U.S., and that expansion will be amplified by a growing portfolio of merchant services. Yet, there are big questions around whether the company can achieve sustainably strong profits at the same time.

The next few quarterly reports will go a long way toward answering that question, especially since they'll include metrics around the reaction to Shopify's recent subscription fee increases. Until then, the stock still seems expensive given its slowing growth and expanding net losses. Investors might want to just keep Shopify on their watch lists for now.