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Shares of e-commerce platform specialist Shopify (NYSE: SHOP) have had a good run recently. Helped by a strong earnings report, the stock is up more than 25% this month as of this writing. Further, this is on top of an already impressive year for the stock. In total, shares have risen 76% year to date.

With such a big move behind it, it’s an excellent time to look closely at the stock and see what has been driving it higher and whether or not shares are attractive. To do this, we’ll examine four metrics supporting the bull case for the stock and one that may leave some investors eyeing the growth stock more skeptically. Why four metrics for the bulls and only one for the bears? It turns out there’s a lot to like about Shopify’s recent execution. So, it’s worth spending some extra time on what the company is doing well.

Revenue is growing rapidly

Shopify continues to grow at a rapid pace despite an uncertain macroeconomic environment. Its third-quarter revenue rose 25% year over year. Growth was driven by a combination of increasing merchandise and payment volume on its platform and strong growth in its subscription solutions revenue. Notably, its subscription solutions revenue was driven both by an increasing number of merchants joining its platform and price increases on some of its plans.

Shopify is demonstrating operating leverage

In another big win for the bulls, Shopify demonstrated meaningful operating leverage in Q3. Its operating income swung from a loss of $346 million in the year-ago quarter to a profit of $122 million.

It turns out that Shopify doesn’t need the operating infrastructure it thought it did to continue growing its business rapidly. Operating expenses declined 23% year over year during Q3. One key contributor to this was a decrease in headcount. But the company is also seeing leverage in other areas, including more efficient marketing spend and more disciplined back-office spend (spending on things like travel, events, and recruiting).

Free cash flow is soaring

Helping beef up its balance sheet, Shopify’s improving business model generated $276 million of free cash flow during Q3. Showing how substantial this free cash flow is, it equates to 16% of revenue. This compares to free cash flow of $148 million, or 11% of revenue, in the year-ago quarter. Such robust free cash flow in Q3 helped grow the company’s cash and marketable securities to $4.9 billion. Net of its outstanding convertible notes, the company has net cash and marketable securities of $4.0 billion.

A sky-high valuation

The bear case for the stock is actually quite simple: Shares are trading at an extraordinarily high valuation. Shopify currently boasts a market capitalization of more than $78 billion despite still being unprofitable by generally accepted accounting principles (GAAP) on a trailing-12-month basis. Even on a price-to-free cash flow basis, shares are expensive; Shopify trades at 143 times trailing-12-month free cash flow.

With a valuation like this, investors seem to already be pricing in high growth rates from Shopify’s revenue and free cash flow for years to come. Even more, the current valuation leaves virtually no room for error. So, if things go worse than expected, the stock could plummet.

Despite the many things going for Shopify’s business, investors may want to be cautious about buying shares at this level. It may be wise to wait to see if the stock’s volatility presents investors with a more attractive entry point in the future.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

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