Shopify (SHOP) stock has had an amazing run with returns of over 440% from the lows of February 2016 to the highs of September 2017. This has left many investors worried that they missed out on a great opportunity.
Is it still safe to buy with the price so high and an astronomical P/E ratio? This is a tough question because the company is investing heavily in growth, managing cash flow so its earnings are close $0. We can only analyze the true value of the business by separating current earnings from the part that's reinvested in growth. Then we can estimate the return on that investment.
In this article I'll break down the two major components of growth investment, R&D and marketing, and calculate the net earnings behind those investments. These show that the future value of Shopify's shares based on these earnings and the potential growth may be a lot higher than today's share price.
Starting from the last quarterly report, Shopify's gross profits for the trailing 12 months are $327m, up from $178m in the previous 12 months for 84% year over year growth. The net loss for the trailing 12 months is $46m.
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