Despite a roaring core business engine, shares of Canadian e-commerce giant Shopify (SHOP) have stumbled at the start of 2026, down roughly 15% year to date. This continues a longer-term trend of underperformance against the broader market over the past five years. So, what’s the problem? The answer boils down to one thing: a hefty valuation.
Looking past the stock price, Shopify’s operational metrics are impressive. In the third quarter of 2025, revenue surged 32% year-over-year, with Gross Merchandise Volume (GMV) growing at the same pace. This acceleration from 31% growth in Q2 significantly outpaces the full-year growth rates of 21% in 2022 and 26% in 2023.
Even more notable is the improvement in profitability alongside this growth. Free cash flow reached $422 million in Q2 2025, with a 16% margin, and climbed further to $507 million with an 18% margin in Q3.
The stock’s strength last year was partly fueled by market enthusiasm around artificial intelligence. President Harley Finkelstein told investors on the latest earnings call that the company is entering a new “era of agentic commerce,” where Shopify is positioned to lead.
The company has integrated its seamless checkout experience into major AI platforms like ChatGPT, Alphabet’s AI Mode and Gemini app, and Microsoft Copilot. These moves, combined with AI-powered tools for merchants, are expected to support robust growth throughout 2026.
In short, it’s hard to find fundamental flaws in Shopify’s business. Yet, that doesn’t automatically make the stock a buy. The core issue is valuation. With a price-to-earnings ratio around 100 and a forward P/E of 73, the market is pricing in not only rapid revenue growth for years to come but also significant margin expansion. This leaves little room for error.
Some analysts argue the stock is overvalued. For high-growth names like Shopify, a more ideal entry point often comes when the valuation bakes in a larger margin of safety.
While Shopify’s full 2026 story remains to be seen, investors will get a key data point when the company reports Q4 2025 results in early February. Management has guided for revenue growth in the “mid-to-high twenties” percentage range. However, to justify its current premium valuation, the market may be looking for a growth rate of 30% or higher.
Investors will be watching closely to see if Shopify can not only meet but exceed expectations, proving its growth narrative is strong enough to support the stock’s price.
