Is Shopify Inc.'s (NYSE:SHOP) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Simply Wall St.12-16

Most readers would already be aware that Shopify's (NYSE:SHOP) stock increased significantly by 54% over the past three months. We wonder if and what role the company's financials play in that price ...

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We wonder if and what role the company's financials play in that price ...</p>\n\n<a href=\"https://finance.yahoo.com/news/shopify-inc-nyse-shop-recent-130018072.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU2265009873.SGD","symbol_name":"Eastspring Investments - Global Growth Equity AS SGD-H","start_time":0,"source_url":"https://finance.yahoo.com/news/shopify-inc-nyse-shop-recent-130018072.html","article_id":"2491699567","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/o4zqfebdp0LaRQbn_hud2Q--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/b0cdf9c1d53532cf826fb3f1475c9558"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2491699567","pubTimestamp":1734354018,"columns":[],"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Most readers would already be aware that Shopify's  stock increased significantly by 54% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Shopify's  ROE today.Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth . Doing so will help them establish if the stock's future looks promising or ominous. 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We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Shopify's  ROE today. \n Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders. \n View our latest analysis for Shopify \n How Is ROE Calculated? \n ROE can be calculated by using the formula: \n Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity \nSo, based on the above formula, the ROE for Shopify is:\n14% = US$1.4b ÷ US$10b (Based on the trailing twelve months to September 2024).\n The 'return' is the income the business earned over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.14. \n What Has ROE Got To Do With Earnings Growth? \n We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or \"retains\", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes. \n Shopify's Earnings Growth And 14% ROE \n To begin with, Shopify seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 13%. As you might expect, the 16% net income decline reported by Shopify is a bit of a surprise. We reckon that there could be some other factors at play here that are preventing the company's growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance. \n So, as a next step, we compared Shopify's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 6.4% over the last few years. \n\n\n\n  NYSE:SHOP Past Earnings Growth December 16th 2024\n \n\n Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Shopify is trading on a high P/E or a low P/E, relative to its industry. \n Is Shopify Efficiently Re-investing Its Profits? \n Shopify doesn't pay any regular dividends, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline. \n Conclusion \n On the whole, we do feel that Shopify has some positive attributes. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company. \nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2491699567"}