Shopify’s shares fell 8.9 percent on Tuesday (June 25), its biggest drop of the year.
The fall comes after its shares more than doubled from the beginning of the year, which created more than $25 billion in market value. That led the company's shares to trade at around 21 times its estimated sales, making it more expensive by that measure than any tech stock in the S&P 500 Index.
However, at least five analysts have downgraded the company in the past two months, mostly due to the stock's hefty price.
"We take a step back on shares to digest the 125 percent YTD increase ([versus] 21 percent for the Nasdaq), premium valuation and new product announcements," wrote Wedbush Analyst Ygal Arounian as he downgraded the stock to neutral from buy, according to MarketWatch. "Additionally, while we view the announcements at Shopify Unite last week as further improving and differentiating the platform, the most impactful announcement, Shopify Fulfillment Network (SFN) isn't expected to generate profits until 2023."
Shopify is expected to generate more than $1.5 billion in revenue this year, and its revenue growth — as well as its execution — is still an attraction for investors. In fact, the company hasn’t missed any sales estimates in the 16 quarters that it has reported results as a publicly traded company.
“The reason I think the shares have done so well, independent of the real strong and favorable environment for software stocks, is that it’s lived up to its promise, and then some,” said Tom Forte, a D.A. Davidson analyst. “They now have a lengthy track record of execution, and being shrewd when it comes to capital allocation.”
Despite the recent downgrades, most analysts are still optimistic about the company. Shopify’s U.S.-traded shares currently have 15 buy ratings, 11 holds and two sells, according to Bloomberg. In addition, the stock has gained almost 1,600 percent since its May 2015 initial public offering (IPO) at $17 a share.