In a market dominated by tech stocks, one stock that has consistently shined brighter than the rest is Shopify (NYSE:SHOP). The e-commerce solutions provider has rattled off big-growth quarter after big-growth quarter, the sum of which has convinced investors that this company is in the early innings of transforming the multi-trillion-dollar global e-commerce market. As investors have become convinced of this, SHOP stock has increased by a factor of 10 over the past three years — from $30 in June 2016 to $300 in June 2019.

With the stock have coming so far in such a short time, the bears have begun to pile on. Indeed, many of my peers at InvestorPlace think SHOP stock is overvalued (see here, here and here).

Ostensibly, it is. The forward and trailing valuation metrics on Shopify stock are out-of-this-world big. We are talking a 20-plus forward sales multiple, and a 500-plus forward earnings multiple. Those are big, even for a hyper-growth tech stock.

But they’ve been very big for a long time — and SHOP stock has done nothing but continue to head higher. Why?

Because an ostensible look at forward valuation metrics oversimplifies the situation here. Shopify is a small company, rapidly gaining share in a big market. The only way to value a company like that is to roll up your sleeves, make some projections about the future, and model it out. When you do that, it becomes more and more obvious that SHOP stock may not be overvalued.

Instead, it may actually be undervalued.

Why Skeptics Think Shopify Stock Is Overvalued

In simple terms, skeptics think that Shopify stock is overvalued because they look at the valuation metrics, without doing the dirty work of making long-term projections.

Indeed, if you just look at the valuation metrics today, you’d easily walk away with the idea that Shopify stock is wildly overvalued. The stock trades at 23 times forward sales. That’s huge. The S&P 500 trades at 2 times forward sales. Even in the highly respected FANG group, the average forward sales multiple is around 6. The biggest forward sales multiple belongs to Facebook (NASDAQ:FB) — and that number is below 8.

Meanwhile, SHOP stock also trades at over 500 times forward earnings. The S&P 500 forward-earnings multiple is around 16. The average forward-earnings multiple in the FANG group is around 55. The biggest forward-earnings multiple in the group is from Netflix (NASDAQ:NFLX), and it’s just 100.

In other words, Shopify stock is richly valued — on its face, relative to the market, and relative to big-tech peers. Thus, if you just looked at those valuation metrics, you, too, would walk away saying that SHOP stock is overvalued.

Why Shopify Stock Isn’t Overvalued

The global e-commerce market measured around $2.8 trillion in sales last year. That represented just 11.9% of total retail sales, up from 8.6% in 2016 and 10.2% in 2017. By 2021, that share is projected to hit 17.5%, and the total e-retail market is expected to measure $4.9 trillion. By 2030, e-retail could easily have a 25% penetration rate, and easily measure well north of $10 trillion.

Shopify’s gross merchandise value was around $41 billion last year. Thus, in 2018, Shopify controlled just ~1.5% of the global e-commerce market. That’s tiny. But, it’s also up from 0.8% in 2016, and 1.1% in 2017. If current growth rates persists, Shopify’s 2019 market share could creep up on 2%. By 2030, it could easily grow to 5-10%. At the midpoint in a $10 trillion-plus addressable market, this implies GMV potential north of $750 billion.

Shopify’s take rate of GMV normally hovers around 1.5%, so that equates to merchant revenue well north of $10 billion. Assuming the subscription business grows somewhat in line with the merchant business, sub revenues could easily get to $4-$5 billion by 2030. Thus, Shopify’s revenues could easily get to $15 billion-plus by 2030.

Gross margins have hovered in the mid-50% range recently, and could get to 60% with scale. The opex rate hovers around 55%, and that will easily fall a ton as scale kicks in. It will probably settle around 30%, implying 30% operating profits and $4.5 billion-plus operating profits. Taking out 20% for taxes, this produces around $3.6 billion in net profits.

Based on a big-growth 25 forward multiple, this implies a 2029 valuation target of $90 billion-plus. Discounted back by 10% per year, that equates to a 2019 valuation target of $34 billion-plus. Shopify stock currently has a market cap of around $34 billion.

Bottom Line on SHOP Stock

Don’t just look at the multiples and call SHOP stock overvalued. Instead, look at the opportunity, recognize the trends, and project where this company will be in ten years.

When you do that, it becomes obvious that there’s fundamentally supported rationale for why SHOP stock has rallied to $300 in a hurry.

As of this writing, Luke Lango was long SHOP, FB, and NFLX.