E-commerce has upended the retail status quo but the revolution is far from over. As new technologies emerge, online commerce continues to evolve in unexpected ways. Within this “disruption” lies investment opportunity.

Epitomizing this trend is Shopify (CSE: SHOP, NYSE: SHOP). With a market cap of $17 billion, Shopify is an intriguing hybrid of e-commerce functionalities and customer relationship management (CRM) cloud computing.

Shopify is doing a terrific job of growing revenues, and while it hasn’t generated profits, it’s slowly approaching that point. Now’s a good time to evaluate the company, as it stands on the cusp of a potential breakout. Is Shopify a hot stock to buy now or just another flash-in-the-pan that will eventually disappoint investors?

Our SHOP prediction will examine the pros and cons of the company and what’s in store for it in 2019.

What Is Shopify?

Canada-based Shopify is a cloud-based multi-channel e-commerce platform for small and medium-sized businesses in Canada, the United States, and around the world.

Shopify builds software that permits merchants to create their own online storefronts with comprehensive retail functionality. Merchants can run a business across multiple sales channels, including both the web and mobile storefronts, as well as physical retail locations.

The Shopify platform also gives clients one complete view of their business, customers, inventory, orders, shipments, and analytics.

The product allows for a multi-channel front end, so merchants can manage, display and sell products through many different sales channels, from physical retail to mobile.

This all comes in one single integrated back-end, simplifying the entire process. Shopify is a significant innovation in the e-commerce realm originally forged by Amazon (NSDQ: AMZN).

Read This Story: Our Amazon Stock Prediction In 2019 (Buy or Sell?)

Shopify’s most recent annual report revealed that, as of the end of 2017, Shopify had 609,000 merchants over 175 countries, of which 56% were in the U.S.

How Has Shopify Stock Performed?

What is Shopify’s Stock History?

• Over the past year, SHOP shares have gained 32% whereas the S&P 500 has lost 7%.
• Over the past two years, SHOP shares have gained 204% whereas the S&P 500 has gained 15%.
• Over the past four years, SHOP shares have gained 453% and the S&P 500 has gained 24%.

How Has Shopify Stock Performed in 2017/2018?

• In 2017, Shopify shares gained 137% whereas the S&P 500 gained 19%.
• In 2018, Shopify shares gained 32% whereas the S&P 500 lost 7%.

Who Are Shopify’s Rivals?

To fully gauge SHOP’s future prospects, we must look at its major competitors.

Wix.com (NSDQ: WIX)

Wix is the $5 billion market cap, 800-pound gorilla in the space, with a whopping 119 million registered users.

Wix offers Artificial Design Intelligence (ADI), which helps users create personalized websites by inputting their basic needs. ADI is a powerful, user friendly, and time-saving tool.

Wix Code offers advanced developers the ability to enhance content-rich websites and to use databases to manage content.

Wix also offers a bespoke front-end to assist in selling goods, taking reservations, and scheduling and confirming appointments. These applications have created websites for literally every kind of consumer-facing business.

Wix offers 270 other apps to enhance the functionalities of its created sites. All of these services are provided via the company’s cloud-based platform.

Weebly (Private)

Weebly is considered a middling competitor to Shopify and Wix. On the plus side, Weebly’s product offers all the tools that any reasonably experienced individual can use to create a functional business website.

The websites are streamlined, functional, and the product doesn’t load up with lots of confusing options. The company also offers helpful search engine optimization guides.

However, website building experts give a thumbs down to the limitations of Weebly’s drag-and-drop customization features. Shopify is stronger in this area. Weebly also lacks the ADI capabilities offered by most other competitors.

Squarespace (private)

Squarespace templates are highly regarded by designers; they give websites a real snap. Not only that, those templates work well on mobile phones and tablets. Squarespace also offers total customization without requiring knowledge of obscure coding.

Squarespace was originally built for creating and hosting blogs; it now incorporates many e-commerce features. The firm also sells domains and offers integration with PayPal (NSDQ: PYPL). Squarespace currently hosts more than one million websites.

Any one of these three rivals, including Shopify, could get acquired (or crushed) by a Silicon Valley behemoth.

Read This Story: Our Alphabet Stock Prediction In 2019 (Buy or Sell?)

Will Shopify Stock Go Up in 2019 (Should You Buy?)

Shopify has a lot going for it. It’s becoming a familiar brand name and able to compete with heavily marketed Wix. Shopify also has been growing revenues at a slightly faster rate than Wix.

Shopify’s services receive generally strong reviews from clients and technology gurus, which helps it remain a viable competitor in the space.

However, we face a challenge in trying to determine whether the stock is cheap or expensive. Because the company still generates losses, it’s difficult to evaluate SHOP based on the standard price-to-earnings ratio, or a price-to-earnings (PEG) ratio comparison.

SHOP can be evaluated on a few other metrics, and market cap to revenue and market cap to cash flow are two approaches.

Trailing 12-month (TTM) revenue for the company comes to $952 million. With a net-of-net-cash market cap of $15.5 billion, the market cap to revenue ratio is a little over 15. For other small-cap growth firms that are on the verge of breaking even, this is not exactly cheap. We like to see ratios less than 10, and closer to 8.

However, the company’s TTM cash flow is $19 million, putting the market to cash flow ratio at well over 230. That’s not even close to being cheap.

Here’s a quick video summary of the stock’s fundamentals:

Will Shopify Stock Go Down in 2019 (Should You Sell?)

So far, the Shopify metrics we’ve reviewed suggest it’s not underpriced. How does it compare to Wix, the other public company in this market? Wix also is generating losses, so we must look at alternative metrics.

TTM revenue for Wix is $558 million. With Wix’s net-of-net-cash position, the market cap is $4.6 billion, giving it a market cap to revenue ratio of just about 8. That makes Wix much cheaper than Shopify, so the latter appears relatively expensive on that metric.

Wix also is generating much stronger operating cash flow, to the tune of $130 million. That means its market cap to cash flow ratio is still high at 36, but it’s much lower than Shopify’s.

In fact, when you put these two companies side-by-side, we find that Shopify is not nearly as strong financially as Wix.

Overall Shopify Stock Forecast and Prediction for 2019

So what’s our SHOP stock prediction for 2019?

One of the dilemmas in trying to determine how a small-cap growth stock will perform is the sheer force of the herd mentality. Once a stock captures the enthusiasm of momentum investors, irrational exuberance can keep shares aloft even if the fundamentals are shaky.

After a while, these small-cap growth stocks become large-cap stocks and their valuations remain ridiculous. Look at electric vehicle maker Tesla (NSDQ: TSLA), which despite its checkered financial performance enjoys a cult following among investors.

In the context of Shopify, we’d much rather go with a small-cap growth company that has better operating cash flow and trades at significantly reduced valuations based on other metrics.

Our verdict: stay away from Shopify. The company’s technology is compelling but its financial metrics are weak. SHOP is a fad stock that probably faces a painful day of reckoning.