Analysts predict collapse of 'ludicrous' valuation amid fading tailwinds, lack of moats, and sector failure
It might not fall victim to a well-known curse in Canadian investing, but Shopify could very well see its recent massive gains vanish in the face of various weaknesses and threats, according to several analysts.
The experts agree that while the coronavirus crisis has contributed to a significant lift for the company, that would not be enough to sustain the company’s stock price, according to Markets Insider.
Calling Shopify’s current valuation “ludicrous,” Robert R. Johnson, professor of finance at Heider College of Business, Creighton University said that the company’s stock is selling at 49 times sales; on a forward PE basis, it’s going for 5000 times the earnings predicted by consensus views over the next 12 months.
“In essence, there is no economic moat with Shopify,” Johnson told Markets Insider.
That view was echoed by eTailz CEO Kunal Chopra, who told the publication that a wave of bankruptcies among retailers would take the wind out of the start-up’s sails. If consumer spending fails to pick up even as economies reopen, he said, could spell the end for multiple retail companies, which could in turn hurt the e-commerce platform.
A newly announced partnership with Facebook to help businesses launch branded Facebook Shops is certainly exciting news for the Canadian consumer tech company. However, Chopra maintained that an absence of operational infrastructure for order fulfillment and relatively modest brand presence will make it challenging for Shopify to take market share from the likes of Amazon.
And while the coronavirus could be ushering in a more technology-based new normal, some like Craig Kirsner, president of Stuart Estate Planning Wealth Advisors, believe that the current surge in digital platform usage will cool with the passing of the crisis.
“I 100% believe that companies like Shopify … are overpriced,” Kirsner said to Markets Insider. “I do believe these companies will be more important going forward. However, they are probably overvalued currently, as most bubble-type investments are.”
