Shopify Stock Fell After Its Report. Here's the Price I'd Pay for It.

Shopify (NASDAQ:SHOP) stock fell nearly 9% on Tuesday after the e-commerce software company posted its third-quarter results. At roughly $144 as I write, shares are about 20% below their Oct. 12 record close of $179.22.

The slide came even though revenue climbed 32% year over year to about $3.7 billion and free cash flow jumped 61% to $816 million.

Before the report, I wrote that I'd rather wait and see where shares settled afterward. The stock was around $157 then, or about 86 times its trailing free cash flow. Now the cash flow has come in slightly over the $800 million I'd penciled in for a strong quarter, and the price is lower. Is it finally time to buy?

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Why did the stock fall?

Investors seemed to want more than a quarter that landed where management said it would. Shopify's guidance was for third-quarter revenue growth in the low 30s, and 32% delivered that.

But revenue had grown 34% in each of the two previous quarters, beating a low-thirties outlook for the first quarter and a high-twenties forecast for the second.

Gross merchandise volume (GMV, the value of orders placed on Shopify's platform) slowed, too. It rose 29% to $119 billion in the third quarter, after gaining 35% in the first quarter and 32% in the second. Currency explains most of that. In constant currency, GMV grew 30% in all three quarters. Gross profit, though, is where the slowdown shows. Its growth rate dipped to 28% in the third quarter, under the 32% and 31% rates in the first two quarters. And management sees high-twenties growth again in the fourth quarter.

Spending is also set to rise. Management guided fourth-quarter operating expenses to 29% to 30% of revenue. In the fourth quarter of 2025, they were about 29%. Chief financial officer Jeff Hoffmeister said on the call that the forecast reflects more marketing, including some efforts before Black Friday and Cyber Monday. A U.S. marketing test held down spending in the third quarter, and he said part of that spending will move to the fourth.

Taking the middle of each range in the guidance, I get fourth-quarter operating income growth in the high teens. That means profit growth might slow sharply from the 66% Shopify just reported.

I doubt any of these explains Tuesday's fall by itself. But together, they suggest profit growth may ease in the quarters ahead.

Not all of the cash will repeat

Shopify's free cash flow margin (the part of revenue left as cash after capital spending) was 22%, against 18% in the third quarter of 2025. This pushed trailing-12-month free cash flow to around $2.7 billion, up from nearly $2.4 billion through June.

Between the higher cash flow and the lower price, the stock's valuation looks much less stretched than it did last week. At a market cap of around $185 billion, Shopify now trades at about 70 times trailing free cash flow, against about 86 times free cash flow before the report and about 98 times free cash flow at the Oct. 12 record.

Still, not all of that improvement is likely to last. Hoffmeister said only about 1.5 percentage points of the margin gain came from lasting cost discipline. He called the rest more temporary, spread about evenly between the marketing test, the timing of some tax receivables, and an accounting change that shifted merchant cash advances (Shopify's financing for its sellers) out of operating cash flow. Management also expects the fourth-quarter free cash flow margin to roughly match last year's 19%.

Taking out the temporary piece, third-quarter free cash flow would have been closer to $725 million. That comes out to around 72 times trailing free cash flow, just slightly above 70.

The price I'd pay

Yes, the e-commerce company is still growing quickly and bringing in much more cash than it did a year ago. Shopify even spent $562 million of that cash to buy back its own shares in the third quarter.

But at around 70 times free cash flow, buyers are still paying for years of rapid growth. And they're paying it right as gross profit growth cools and management boosts its marketing.

Does the lower price make Shopify a buy? I think the drop moved the stock closer to a price I'd pay, but not all the way there. I'd start to consider shares somewhere around $115, or about 55 times trailing free cash flow.

That's about 20% under where the stock sits now, so I'm in no rush.

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.