I think this is a great question and I agree with mess7777 that you’d be little f foolish not to at least consider that with a PS of 14+, the valuation is looking a little stretched. The real question is what is your strategy?
Quite recently, when SHOP shares were under $40, I invested over 25% of my portfolio in the company. I never meant for that to be my long term level. I just thought it was easily the #1 most compelling short term prospect I could find, and a long term almost lock to keep succeeding as well…that’s what I call a fat pitch. When shares jumped to $47, I took a little off the table. I just didn’t want to have that much of my money tied up in one company. I trimmed a little more at $51 or so, and then a little more at $56. It’s an allocation thing, not a prediction that the stock will go down (although it is true that as the price goes up, there’s an increasing likelihood that I’ll someday get a chance to buy again at a price cheaper than the current price). But as SHOP gets more and more expensive, other things I like get relatively cheaper and more compelling.
SHOP is still my #1 position, but at it’s current PS of just over 14, it’s a 13.5% position…a far cry from 25%. As much as I like the company and don’t see myself selling all my shares any time soon, there are limits to how much exposure I want at a certain price. Maybe the scenario is something like this, but I’m just making up the numbers:
PS Position I'm comfortable with
<10 25%
12 20%
14 15%
16 10%
18 8%
20 6%
Again…making up the numbers and maybe they’re not really that meaningful. And also it depends what else looks like a fat pitch (e.g. HDP right now).
Of course I must point out that with a company growing like SHOP, whatever the PS is will not be the PS for long, because every quarter they almost double sales. However, at a PS of 20 it would take a double for full year 2017 just to get the PS down to 10, and maybe it’s my short-sightedness, but that seems astronomical no matter how long this amazing growth may persist. I don’t expect, and I don’t think anybody expects, that SHOP can grow at almost 3-digit percentages forever. You can only predict so far out, but they do have a lot going for them.
Bear