Shopify is Overvalued at 11.24X P/S: Buy, Sell or Hold the Stock?

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So, are SHOP shares a buy at this level? Let’s find out.

SHOP Shares Drop 4% YTD: What’s Plaguing the Stock?

Shopify shares have dropped 4.3% year to date (YTD), underperforming the broader sector’s return of 18.2%. Shopify has outperformed Wix.com and Commerce.com, YTD, but lags Amazon. While Amazon shares have returned 16.3%, Wix.com and Commerce.com have dropped 30.3% and 46.6%, respectively.

SHOP Stock’s Price Performance

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The decline in Shopify’s price can be attributed to investor expectations around the durability and profitability of growth. In the second quarter of 2026, revenues jumped 34% year over year to $3.58 billion, Gross Merchandise Volume (GMV) increased 32% year over year to $115.6 billion and free cash flow margin expanded to 18%. 

However, Shopify expects third-quarter 2026 revenues to grow in the low-30% range while gross profit in dollar terms is expected to rise only in the mid-to-high 20% range. The slower gross-profit growth reflects an ongoing mix shift toward Merchant Solutions and payments, which carry lower margins than Subscription Solutions. Merchant Solutions represented 78% of Q2’26 revenues versus 76% in the year-ago quarter. Shopify expects the longer-term mix shift toward lower-margin Merchant Solutions to continue, which somewhat limits investor enthusiasm related to margin expansion.

Meanwhile, transaction and loan losses increased to $141 million in the second quarter of 2026 compared with $80 million reported in the year-ago quarter. Shopify noted that transaction and loan losses reached 3.9% of revenues and will scale with volumes in Shopify Payments, Capital and credit products, with Capital accounting for a larger portion of the increase in Q2’26. Moreover, expansion of Shopify Capital increases balance-sheet and credit exposure. Loans and merchant cash advances rose to $2.18 billion as of June 30, 2026, from $1.78 billion at year-end 2025. Higher credit-related costs definitely temper investor optimism.

Shopify is spending significantly on AI initiatives. However, the economic contribution from agentic commerce remains relatively meager, as management noted that AI-related commerce volumes are still small relative to Shopify’s overall GMV, even though AI-driven traffic and orders are growing rapidly. Unless Shopify proves that heavy AI investments are translating into incremental merchant growth and GMV, investor sentiments are expected to remain jittery.

SHOP to Ride on AI Push & Payments Penetration

Shopify’s prospects are expected to be supported by the continued expansion of its merchant base and the ability of existing merchants to scale on the platform. Increasing adoption of Shopify Payments, Shop Pay and other Merchant Solutions should provide another important growth engine. Shopify Payments penetration reached 68% of global GMV in the second quarter of 2026, up three percentage points year over year, while management sees further penetration opportunities in both domestic and international markets. Shopify Payments is now available in 40 countries, and penetration in Europe increased by more than 350 basis points year over year. Shop Pay GMV also grew 53%, supported by additional local payment methods and increasing adoption of Shop Pay Installments. 

International expansion and deeper penetration of large enterprises, offline commerce and B2B should further expand Shopify’s addressable market. Shopify already accounts for more than 14% of U.S. e-commerce but expects further penetration, while serving millions of merchants across more than 175 countries. In the second quarter of 2026, Europe GMV increased 34% on a constant-currency basis, offline GMV rose 32%, and B2B GMV surged 76%. Shopify is also gaining traction with larger retailers. Management highlighted that enterprise merchants increasingly begin with one channel and subsequently adopt Shopify’s broader unified-commerce offering, including POS, B2B and other services, creating cross-selling opportunities and deeper merchant relationships. The ability to serve merchants ranging from new entrepreneurs to global brands should therefore allow Shopify to capture a larger share of overall commerce spending over time.

AI and agentic commerce represent an additional long-term opportunity. Shopify has positioned Catalog, its checkout infrastructure, Universal Commerce Protocol and Sidekick as core elements of its strategy for enabling commerce across AI-driven channels. Shopify Catalog contains more than 1 billion structured products, with Catalog-powered AI traffic generating materially higher conversion than general AI search. Shopify also reported that AI-driven traffic and orders have tripled year over year, while new-buyer orders from AI channels are running at roughly twice the rate of other channels. Sidekick could further support merchant acquisition and retention by lowering the barriers to starting and operating a business. Shopify believes agentic commerce particularly benefits the smaller, specialized brands that make up much of its merchant base, while increasing the strategic value of the company’s checkout, identity and payment infrastructure.

SHOP’s Q3 Earnings Estimates Revisions Are Positive

The Zacks Consensus Estimate for SHOP’s third-quarter earnings is currently pegged at 44 cents per share, up a penny over the past 30 days and indicating year-over-year growth of 29.41%. 

The Zacks Consensus Estimate for SHOP’s 2026 earnings is currently pegged at $1.89 per share, up a nickel over the past 30 days and indicating year-over-year growth of 61.54%.

Conclusion

Shopify’s strong revenue and GMV growth, increasing payments penetration, international expansion and growing presence in enterprise, B2B and offline commerce support its prospects. AI and agentic commerce could provide additional growth opportunities, although their financial contribution remains limited for now. At the same time, the continued shift toward lower-margin Merchant Solutions, rising transaction and credit-related losses and increased exposure through Shopify Capital warrant attention. SHOP’s premium valuation leaves limited room for execution missteps. Investors may therefore prefer to wait for a more favorable entry point or clearer evidence that Shopify can sustain its growth while improving profitability.

Shopify currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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