At current levels, investors may wonder what to make of Shopify (SHOP -7.85%) stock. It has increased by around 85% over the last year, but more than half of those gains occurred in 2024. More recently, the stock's rise seems to have slowed.
Additionally, Shopify is within 15% of its all-time high from 2021, and that has led to an elevated valuation. Knowing that, is the party finally over for Shopify, or should investors stay the course?
Image source: Getty Images.
The state of Shopify today
At first glance, Shopify's stock price could appear difficult to justify. For one, its P/E ratio of 83 seems elevated, even for a growth stock.
Moreover, it operates in a highly competitive industry. That is particularly concerning since one of its peers is Amazon, which also sells a wide array of products and options for free shipping. Additionally, Amazon offers a sales platform for third-party sellers. Unlike Shopify, Amazon compels these merchants to share a portion of their revenue with them, but the power of its sales platform can put Shopify at a competitive disadvantage.
Despite that competitive situation, Oberlo estimates Shopify has a market share of 28% of online stores in the U.S., making it the country's largest e-commerce platform. It also claims an estimated 10% of all global online stores.
Furthermore, according to Grand View Research, the compound annual growth rate (CAGR) is 19% through 2030 for the e-commerce industry. That rate of increase should mitigate some of the competitive concerns.
Shopify has also shown it can course correct when necessary, as shown by its abandonment of an expensive plan to extend its ecosystem into logistics. The cost of building a logistics network resulted in losses that caused its stock to fall by as much as 87% earlier in the decade. Now, with its focus exclusively back on software, Shopify stock has moved higher.
Shopify's financials and valuation metrics
Indeed, its software has given it a competitive advantage. Despite intense competition, Shopify's site has stood out by allowing merchants to tailor their platforms without coding knowledge. Moreover, it emphasizes speedy transactions, reducing the likelihood that a seller will lose business from a poorly functioning site.
Also, notwithstanding its failures in logistics, Shopify has developed an ecosystem that can benefit its merchants. Aside from site operations and maintenance, Shopify can perform tasks such as email marketing, payments, inventory management, and raising capital. This makes site management easier for sellers while giving Shopify additional revenue sources.
Regarding revenue, one could argue that the company's financial performance justifies its valuation. In the first half of 2025, the $5 billion in revenue it generated grew 29% compared to the same period in 2024. During that time, it limited its expense growth to 18%. That helped it turn profitable in the first half of the year, and Shopify earned $224 million in net income during that period, up from a loss of $102 million in the previous year.
This turn to profitability for the first half of the year could help make the aforementioned 83 P/E ratio more palatable to investors. Nonetheless, the company's price-to-sales (P/S) ratio of 19 confirms this is an expensive stock. That high valuation may make the near-term future of the stock's direction less clear, especially if investors begin questioning whether Shopify can justify its current share price.
Is the party over for Shopify stock?
Given current conditions, the party is unlikely to be over for Shopify, but investors could become less celebratory in the near term.
Despite heavy competition, Shopify has built a competitive advantage by offering a versatile platform and extensive ecosystem. That allowed it to become the United States' No. 1 platform, and with the industry growing rapidly, Shopify is well positioned to capture a significant portion of that growth.
Indeed, the 19 P/S ratio could indicate the stock price is slightly ahead of fundamentals. While that could mean that the party becomes less lively for a time, long-term investors should expect to celebrate future stock gains as more merchants choose to operate within Shopify's ecosystem.
