Shopify Shares Are Climbing Today - Are They Overvalued?

One of the standouts of today's morning trading session was Shopify, which logged a 6.8% performance after announcing that it had hired Jeff Hoffmeister to fill the role of CFO. Hoffmeister was previously an investment banker with Morgan Stanley. The Software stock is now trading at $34.12 per share and may still have upside potential because it is still -56.07% under its average target price of $77.66. Analysts have set target prices ranging from $43.33 to $131.3 dollars per share, and have given the stock an average rating of hold.

Shopify's short interest can give us an idea of what future price movements the market expects from the stock. The short interest is the percentage of shares that are tied up in short positions, which will provide gains to the investor only if the stock price falls. The stock's short interest is 6.5% which seems to indicate a mixed sentiment on SHOP.

Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.

Another way to gauge the sentiment on Shopify is to look at the percentage of institutions that are invested in the stock. In this case, 61.4% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.

Institutions have vast resources. If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.

Analyst coverage, short ratio, and institutional ownership say a lot about how the market views a stock. But markets can be wrong. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.

Here's a snapshot of some important facts to keep in mind about SHOP:

  • The stock has trailing 12 month price to earnings (Eps) of $0.13 per share

  • Shopify has a trailing 12 month Price to Earnings (P/E) ratio of 262.4 compared to the S&P 500 average of 15.97

  • The company has a Price to Book (P/B) ratio of 4.9 in contrast to the S&P 500's average ratio of 2.95

  • Shopify is a Technology company, and the sector average P/E and P/B ratios are 20.64 and 5.39 respectively

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.