While shareholders of Shopify (NYSE:SHOP) are in the black over 5 years, those who bought a week ago aren’t so fortunate

It’s been a soft week for Shopify Inc. (NYSE:SHOP) shares, which are down 16%. But that doesn’t change the fact that the returns over the last five years have been very strong. It’s fair to say most would be happy with 230% the gain in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Only time will tell if there is still too much optimism currently reflected in the share price. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 76% decline over the last twelve months.

While this past week has detracted from the company’s five-year return, let’s look at the recent trends of the underlying business and see if the gains have been in alignment.

Shopify isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

For the last half decade, Shopify can boast revenue growth at a rate of 43% per year. That’s well above most pre-profit companies. Meanwhile, its share price performance certainly reflects the strong growth, given the share price grew at 27% per year, compound, during the period. So it seems likely that buyers have paid attention to the strong revenue growth. Shopify seems like a high growth stock – so growth investors might want to add it to their watchlist.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Shopify will earn in the future (free profit forecasts).

A Different Perspective

While the broader market lost about 9.3% in the twelve months, Shopify shareholders did even worse, losing 76%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn’t be so upset, since they would have made 27%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 1 warning sign for Shopify that you should be aware of.