SHOP

We rate SHOPIFY INC. (SHOP) as a Hold with a composite score of 50.8/100 at a current price of $116.95. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (66th percentile) and quality (50th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (28th percentile) and value (42th percentile) tempers our overall conviction. We assign a Narrow Moat rating (51/100), High uncertainty, and Exemplary capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SHOPIFY INC. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 50.8/100 places it at rank #1887 in our full 7,333-stock universe. With a $187.1B market capitalization, SHOPIFY INC. operates at meaningful scale within the Services sector, providing competitive advantages in distribution, procurement, and customer reach.

The near-term outlook is constructive, with revenue growing at 32% and momentum in the 66th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 28th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 48% (-11.5pp vs sector) narrow to operating margins of 13% (+9.2pp vs sector) and net margins of 10.7%, yielding a gross-to-net conversion rate of 22%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $116.95, SHOPIFY INC. is trading near fair value based on current fundamentals. Our value factor score of 42/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 123.5x (a 420% premium to the sector median of 23.7x), EV/EBITDA of 28.0x (at a premium), P/B of 12.2x, P/S of 3.6x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to SHOPIFY INC.. Key risk factors include elevated market sensitivity (beta of 2.23), elevated valuation multiple (P/E 123.5x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 2.23); elevated valuation multiple (P/E 123.5x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 45th percentile and quality factor at the 50th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 48% provide a buffer against cost pressures; conservative leverage (13% D/E) limits balance sheet risk; large-cap scale ($187.1B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate SHOPIFY INC.'s capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 36.5%, disciplined leverage (13% D/E). Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — SHOPIFY INC. meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. We note that the combination of 32.4% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, SHOPIFY INC. receives a Hold rating with a composite score of 50.8/100 (rank #1887 of 7,333). Our quantitative framework assigns a Narrow Moat (51/100, trend: stable), High uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 46/100.

Our analysis supports a neutral stance on SHOPIFY INC.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.