Three years ago, I called a relatively obscure, newly public e-commerce solutions provider known as Shopify (NYSE:SHOP) the most exciting stock in the market.

At the time, SHOP stock was trading hands below $100.

Today Shopify trades around $1,000.

Needless to say, over the past three years, SHOP stock has lived up to the hype. It has, without a doubt, been one of the most exciting stocks in the market.

But the bull thesis on SHOP stock is now changing after its valuation soared ten-fold over the past three years.

Three years ago, Shopify was a long-term winner trading at a hugely discounted valuation. Today Shopify is still a long-term winner. But its hugely discounted valuation has been replaced with a full valuation.

Investors should not sell the stock because it will be a winner over the long-term. But they should also not buy the shares at these prices. Instead, they should hold their stock and ensure that, as a percentage of their portfolios, Shopify is neither too high or too low.  Investors should wait for the shares to become more volatile and  buy the stock when it falls back below $900 and maybe even towards $800.

Shopify Is a Long-Term Winner

Just as it was three years ago, Shopify is a long-term winner which all investors should have in their long-term portfolios.

Its story is shockingly simple.

By providing retailers of all shapes and sizes with the tools they need to create and maintain robust online selling operations. Shopify is morphing into the technology backbone of modern commerce,

The company is a one-stop-shop for all e-commerce solutions.

For businesses that need to a build an e-commerce website and/or sell products across various online social channels, Shopify has solutions. Shopify can also increase companies’ digital marketing effectiveness.

So Shopify is every merchant’s best friend in the 21st century.

Going forward, consumer spending will continue to migrate into the online channel, likely at an accelerated pace over the next few years due to the Covid-19 pandemic. As it does, more and more merchants will pivot away from physical stores and towards websites. That will increase Shopify’s customer base.

At the same time, the amount of traffic and revenue those websites generate will climb as more spending migrates online. As a result, Shopify’s gross merchandise value per merchant will also increase.

The rapid expansion of Shopify’s customer base and its high GMV per merchant growth will cause the company’s overall GMV to increase tremendously. On the back of that supercharged GMV growth, Shopify’s revenues will soar, its margins will improve thanks to the company’s software-based business model which facilitates growth, and its overall profits will explode higher.

Stocks rise and fall with profits. Powered by explosive profit growth over the next five to ten years, SHOP stock will charge higher.

Dealing With the Full Valuation of Shopify

Although SHOP stock is a long-term winner, the shares are also under some near-term valuation pressure.

Here’s the math.

Shopify should be able to leverage rising e-commerce tailwinds among small-to-medium-sized merchants to grow its share of global e-retail sales from about 1.7% in 2019 to 10%+ by 2030. Shopify will also utilize its new hardware offerings to more aggressively expand into the physical retail world. Those two top-line drivers should enable its  revenue to climb 15%+ per year over the next decade.

The company’s profit margins will improve as it grows. I estimate that its operating margins can reach roughly 30% by 2030, versus about 0% today.

Consequently, I think that its earnings per share will near $55 by 2030, which is roughly in-line with analysts’ average estimate.

Based on a forward earnings multiple of 35,  which is average for the application-software sector, that implies a 2029 price target for SHOP stock of $1,925. Discounted back by 8.5% per year, my 2020 price target becomes approximately $920.

So, at $1,000, SHOP stock is slightly overvalued relative to the company’s long-term profit growth outlook.

That doesn’t mean it’s time to sell the stock. Investors should not sell a long-term winner every time it gets slightly overvalued. Anyone who does that would be selling long-term winners all the time, and that’s not a good  investment strategy.

But that does not mean that it’s time to buy the shares. Instead, investors should be patient. and wait for the stock to drop before buying it.

The Bottom Line on SHOP Stock

Shopify stock is a long-term winner that, at $1,000, is slightly overvalued in the near-term.

As a result, the best thing to do now with the shares is wait.

Those who own them should just hold onto them. Those who don’t own the stock should stay on the sidelines.

Given how far Shopify stock has come due to the pandemic, it’s quite likely that the stock will have some periods of weakness over the next few months. During those periods,  the shares could plunge below $900 and maybe even fall as low as $800.

If or when those dips arrive, buy the stock on weakness.