Cathie Wood is still buying Shopify stock. Should I?

Cathie Wood has made a name for herself as a disruptive technology investor. He’s not afraid to make risky moves, which makes his portfolio interesting to watch. She hasn’t always been right, but her investment thesis often takes time to play out.

Shopify (STORE 0.05%) it is one of her favorite stocks. She holds positions in three of Ark Invest’s exchange-traded funds (ETFs): 3.75% of the flagship Ark Innovation ETF2.87% of Ark Next Generation Internet ETFsand 9.07% of Ark Fintech Innovation ETFits highest position.

In fact, it’s her largest position overall, accounting for 12.75% of the weight of all her ETFs, but she was still buying Shopify shares this week. Should you follow his lead?

Why does Cathie Wood love Shopify?

Cathie Wood invests in disruptive technology stocks. While some of them are already household names, others are just getting started. Her approach is forward-looking and often at odds with general market sentiment.

Consider Shopify. It has a niche approach to e-commerce; does not sell its own products, but supplies other e-commerce retailers with a full range of solutions to serve almost any budget between small business and enterprise customers. This focus places it in the category of retail disruptors.

Wood told Bloomberg in an interview that “Shopify really started the social commerce revolution,” allowing social media companies to enter e-commerce through its technology-based platform. She expects e-commerce to jump from 15 percent of retail sales today to 50 percent in the near future, and Shopify should be a primary driver and beneficiary of the trend.

Shopify management also sees this opportunity. It’s making progress in international expansion, with international merchants growing 30% year-over-year in the second quarter. Shopify is rolling out new and improved features to maintain its dominance in e-commerce software and capture market share, such as a unified platform for all customer solutions.

The company continues to report robust growth despite a weak retail climate. Because it feeds other retailers, it has more staying power than the standard product seller. Vendor clients need his services even in adverse circumstances.

However, most of Shopify’s revenue comes from processing payments, not from the subscription fees customers pay, which only make up about 15% of total revenue. When customers process less volume, Shopify sees less revenue. That’s why subscription solutions revenue grew 27% year-over-year in the second quarter, outpacing total revenue growth of 21%.

Cathie Wood may buy more shares in anticipation of lower interest rates that will boost the economy and Shopify’s business. The company’s shares are down about 4% this year and could be poised to go higher.

Why be worried

Shares of Shopify have been volatile in recent years as they try to maintain growth while becoming profitable. It overbuilt when it built to meet growing demand and is making the right moves now to downsize to current demand.

The cost reduction is already showing in its financial statements. Operating income was $241 million in the second quarter, up from a loss of $1.6 billion last year. It generated free cash flow of $333 million and net income totaled $171 million. Things are moving in the right direction, but it’s something to watch out for.

There’s something else to worry about, and that’s the rating. Shopify stock trades at a price-to-sales ratio of 13 and a forward P/E ratio of 55. This is a premium valuation and implies market confidence in Shopify’s potential. However, it leaves little room for error. When Shopify’s results weren’t perfect, the stock dropped dramatically.

At this price, Shopify stock could be a buy for risk-tolerant investors like Cathie Wood. It’s a bull market buy, and as interest rates begin to fall, Shopify’s stock could rise, regardless of its lofty valuation. But if you don’t have the stomach for volatility, it’s probably not the best candidate for your portfolio.