Shopify Stock Made Massive Gains Over the Last Year. Does That Mean It Is Done Rising?

Will Healy, The Motley Fool

Sun, Jun 1, 2025, 2:52 AM 4 min read

Key Points

Shopify stock is up by around 85% over the last year.
Amid those gains, valuations have risen significantly.
10 stocks we like better than Shopify ›

Investors may be increasingly concerned about Shopify's (NASDAQ: SHOP) recent performance. The stock has risen by around 85% over the last year. Still, nearly all of those gains occurred in 2024. And with the stock trading in a range in 2025, investors may begin to question its recent performance.

With those gains, valuations have risen, and investors have become increasingly concerned about tariffs, particularly since many of Shopify's customers are small businesses. Does that mean the stock is done moving higher? Let's take a closer look.

Image source: Getty Images.

The state of Shopify

Shopify is in a sweet spot in the e-commerce industry. Even with a market size that reached $26 trillion in 2023, Grand View Research forecasts a 19% compound annual growth rate (CAGR) for the e-commerce sector through 2030.

The company's quarterly gross merchandise volume (GMV) reached $75 billion in the first quarter of 2025, a 23% year-over-year increase. When matching that volume against the industry's size, it means Shopify represents only a small fraction of the global e-commerce business, indicating considerable growth potential remains.

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To achieve that volume, the company has to stand out among numerous competitors. It has accomplished that by building a fast, no-code platform where entrepreneurs with no information-technology skills could set up and customize their Shopify-supported sales sites.

Rapid sales processing and a vast ecosystem with ancillary functions such as capital raising and email marketing made the company an appealing choice for merchants. That success began to draw large businesses after the company developed Shopify Plus.

Despite such changes, smaller enterprises remain a key part of the company's customer base. This is concerning because many of these clients depend on low-cost goods from overseas, and reductions in that business could affect Shopify's top and bottom lines.

Shopify by the numbers

So far, tariff worries have not translated into financial hardships for Shopify. In the first quarter of 2025, revenue of $2.4 billion rose 27% compared to the year-ago quarter. That exceeded the industry CAGR forecast by Grand View Research, an indication the company's market share is likely rising.

Although the company's operations were profitable, a $1 billion net loss on investments weighed on the bottom line. In the first quarter, it reported comprehensive losses of $678 million versus a $281 million loss in the same quarter last year.

Still, quarterly free cash flow of $363 million increased by 56% year over year. That growth resulted in a free cash flow margin that rose to 15%, up from 12%, indicating that higher revenue has translated into improved financial performance.

Despite the losses, the company forecasts revenue growth at a "mid-twenties percentage rate," an indication it continues to maintain its current revenue growth rate.

That strength and rising stock price have led to higher valuations. Consequently, its recent price-to-earnings ratio (P/E) of 87 and price-to-sales ratio (P/S) of 15 indicates this is not a cheap stock. The question for investors is whether Shopify stock is worth that premium.

Should you buy Shopify stock?

Under current conditions, the stock should remain a long-term buy.

Investors may feel frustrated with the stock's performance in recent months as it has traded within a range. And it is unclear how tariffs will affect its smaller clients, making investors wonder whether the company can sustain its gains.

Nonetheless, Shopify's financial performance continues to exceed the overall industry CAGR, and so far, there are no signs suggesting that this trend will change. And improving free cash flow margins show the company is benefiting from its successes.

Higher valuations could cool the stock's performance in the near term, but the continued growth of Shopify and the industry it's in indicates its growth story may have just begun.

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Will Healy has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

Shopify Stock Made Massive Gains Over the Last Year. Does That Mean It Is Done Rising? was originally published by The Motley Fool

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