Morningstar’s Romanoff is sceptical about Shopify’s valuation: here’s why

Shortly after Shopify Inc. (NYSE: SHOP) reported market-beating results for its fiscal second quarter, Morningstar’s Dan Romanoff on Wednesday expressed his doubts about Shopify’s stock price.

Romanoff’s remarks on CNBC’s “TechCheck”

On CNBC’s “TechCheck”, Romanoff acknowledged that Shopify was a great company but warned that the current valuation was hard to justify.

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“From a software company perspective, the growth has been great, the matrix is impressive. But at the same time, the assumptions you have to believe to justify the stock price around $1,500 a share, is bullish to the extreme,” he added.

Romanoff compared Shopify with Amazon to conclude that the Canadian eCommerce company has to “hit really big numbers over the long term” to support the current valuation.

Shopify benefitted greatly from the pandemic-driven boom in eCommerce that saw its share price jump from around $350 last year in March to roughly $1,500 at the time of writing. Now that the COVID-19 restrictions are starting to ease and people are going out more, how much of that online shopping trend will sustain is yet to be known.

Also on Wednesday, a California consumer sued Shopify over collection of online shoppers’ personal information.

Shopify faces intense competition

According to Romanoff, intense competition is another threat to Shopify.

“We do think competition here is a bigger risk than what’s normal for software companies. Salesforce and Adobe are considered leaders in the marketing hub platform area, and that is not something that Shopify can bring to bears. So, I think that is a hole in the platform. Salesforce (Demandware) is a high-end price product, whereas Shopify caters to the SMB market. Features wise, therefore, Salesforce is a more robust platform,” he said.

Shares of the company are about 2.0% up on Wednesday. The $187 billion company now has a price to earnings ratio of 77.51.

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Post Author: Adam Jacob

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