World News – CA – Shopify (TSX: SHOP) shares just plunged 17% – Buy or wait?

The Motley Fool Canada »Investing» Shopify (TSX: SHOP) Stock Just Dipped 17% – Buy or Wait?

Joey Frenette | November 2, 2020 | Find out more: BOUTIQUE BOUTIQUE

Don’t look now, but the race in Shopify (TSX: SHOP) (NYSE: SHOP) stocks came to a screeching halt last week, with stocks falling just over 17% from their all-time highs and 14% last four trading sessions

The Canadian ecommerce kingpin had a nasty valuation, with a multiple of the sell price north of 60 times, making it one of the most expensive stocks in the entire TSX index The foamy valuation and the risk of the company failing to pass the very high bar placed in front of it prompted me to warn investors that the name was at high risk of suffering a vicious pullback.

In previous articles, I have noted that the boom quarters alone were probably not enough to keep the stock’s momentum going, given the deep scale of multiple expansion the company had enjoyed. these last months Many elk hunters who paid whatever the price M The demanded market was rocked by a rapid and furious correction last week

With the wider markets pulling back once more, I’d be willing to bet that Shopify shares could continue to lead the load on the downside and encourage downside buyers to be cautious with the name, even after the last quarter of eruption, which, while worthy of applause, was still not enough to allow Shopify stock to rally in the face of huge weakness in the broader markets

Shopify had another terrific quarter that defied expectations.However, given how frothy the stock had become, the third quarter blowout failed to give the stock a boost as it many investors entered the quarter with a magnifying glass looking for traces of hair

Thought there was no hair on the neighborhood Gross Merchandise Volumes (GMV) from retail platforms more than doubled year over year Revenue and BPA both exceeded analysts’ expectations, the former of which was around 20% higher than consensus demanded

It has been a truly magnificent quarter, and probably not the last, given that the company is poised to continue to ride in the winds of the pandemic as this crisis is expected to worsen later in the year. ‘year If it hadn’t been for the ridiculously high multiple of the Shopify share, I would have beaten the chart on the name after its post-profit slump, touting that the post-profit sale was unjustified and the results of the explosion would be free

With investors nervous over a lack of guidance and a wider market sell-off not spared pandemic-resistant names, I would much rather wait for a pullback below $ 1000 levels , because Shopify’s stock remains insanely expensive after last week’s sharp drop

At the time of writing, SHOP’s shares are trading at 46 times sales (comparable to over 60 times sales at peak levels), which is still a nosebleed-level assessment. in my books

With growing concerns about Shopify’s ability to continue raising the bar on itself, I wouldn’t be surprised if the name is halved as M The market is looking to punish expensive tech stocks that have seemed unstoppable in recent months

While I’m still optimistic about Shopify’s long-term growth, I still believe the name risks ‘double damage’ if this wider market decline continues As such, I encourage patient investors to wait for a more attractive entry point (20-30 times sales) before initiating a position that requires more than perfection to support a higher rally.

Of course, a nearly 20% cut on a stock is good for dip buyers and value hunters.However, when you compare the drop to the deep rally out of those March depths, I would say the Shopify action has barely « corrected », even though this latest drop greatly exceeds the traditional definition of a correction

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Fool contributor Joey Frenette has no position in any of the stocks mentioned Tom Gardner owns stock in Shopify The Motley Fool owns stock and recommends Shopify and Shopify

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Stock, Shopify, TSX, NYSE: SHOP, Stock Exchange, E-commerce