Shopify Stock Is More Than 10% Below Its Record. Should You Buy Before Its Nov. 3 Report?

Shopify (NASDAQ:SHOP) closed at a record $179.22 on Oct. 12. Under three weeks later, the e-commerce software company's stock trades at roughly $157 as I write -- about 12% below that record, including a fall of about 6% on Friday.

The slide comes right before a big test. Shopify releases its third-quarter results before the market opens on Tuesday, Nov. 3. And management already told investors what to expect back in August: revenue growth at a low-thirties percentage rate, gross profit growth in the mid-to-high 20s, and a free cash flow margin in the high teens to low 20s.

The last time I checked on the stock, in mid-October, it traded near $170, and I figured buyers were paying for years of growth in advance. The stock is cheaper now, and management has set a clear bar for the quarter. But I don't think the drop changes as much as it may seem.

Image source: Getty Images.

Shopify has cleared this bar before

For the first quarter of 2026, Shopify gave investors the same low-thirties revenue forecast. Revenue grew 34% year over year. Management guided for gross profit to rise at a high-twenties rate, and it climbed 32%. The free cash flow margin reached 15%, at the top end of a low-to-mid-teens range. The second quarter had an even bigger gap. Management guided for revenue growth in the high 20s and got 34%, while gross profit rose 31% versus a mid-twenties forecast.

Plus, the second-quarter free cash flow margin hit 18%, up from 16% the year before.

Put another way, Shopify's guidance has arguably been on the cautious side all year.

That said, the third quarter brings a tougher comparison. Shopify's revenue rose 32% year over year in the third quarter of 2025, a pickup from 27% growth at the start of that year and 31% in the second quarter. The year-ago results have gotten harder to lap every quarter in 2026, and Shopify has still kept growth at 34%. Hitting that again would put revenue at around $3.8 billion, up from about $2.8 billion a year ago.

Gross profit is set to rise more slowly. Management's mid-to-high-twenties forecast is below the 31% growth Shopify had in the second quarter.

One big reason is mix (the share of sales from each business line). Merchant solutions revenue, which is mainly payment processing, climbed 37% year over year in the second quarter, while subscription solutions revenue grew 22%. But merchant solutions kept only about 38% of its revenue as gross profit, versus about 80% for subscriptions.

So, the faster Shopify's payments business grows, the more gross profit can lag revenue.

A good report hasn't been enough

Clearing the bar, though, hasn't reliably helped the stock. On May 5, the day Shopify posted 34% first-quarter revenue growth versus that low-thirties outlook, shares dropped around 16%.

They also slid about 7% on the days the company put out its fourth-quarter 2025 results in February and its third-quarter 2025 results last November. Just the August report pushed the stock up, with shares jumping around 17% that day.

That suggests investors are grading Shopify on more than whether it beats its own guidance. And with the stock still within about 12% of its record, the market's bar may well be above management's.

Is the stock cheap enough yet?

At roughly $157 a share, Shopify's market cap is about $200 billion. That's about 86 times its free cash flow for the 12 months through June (almost $2.4 billion). At the Oct. 12 record close, it was about 98 times free cash flow. So the drop has helped, but not enough to change much. The stock also sells for around 64 times adjusted earnings forecast for 2027, a price-to-earnings ratio that assumes fast growth for years to come.

A strong quarter can't solve that by itself, either. Even if Shopify lands at the top of its third-quarter forecast, swapping last year's $507 million in third-quarter free cash flow for something closer to $800 million would still leave the stock at between 75 and 80 times trailing free cash flow.

So, is it time to buy ahead of Nov. 3? Sure, Shopify will likely clear the bar it set in August, as it has all year. But at this valuation, I think that kind of quarter is about what buyers are already paying for, and the stock's recent report days show how little it can take to push shares down.

I'd rather wait for the report and see where shares settle afterward.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.