For most of 2019, investors have wondered how long Shopify (NYSE:SHOP) stock could keep soaring. Shopify’s business certainly was attractive: a high-growth play on the increasing democratization of e-commerce. But the valuation of Shopify stock seemed increasingly untethered from reality.

Of course, SHOP stock just kept gaining. At late August highs of $409, SHOP had nearly tripled in 2019 alone. Those gains had added over $30 billion to the company’s market value.

From those highs, however, the bottom has fallen out. Shopify stock has pulled back some 23% in less than a month. And it’s hard to tell exactly why. There have been two pieces of news of late — but neither seems all that material, and the declines in SHOP began before either took place.

Instead, it just looks like the market as a whole finally came around to some of the valuation concerns with Shopify stock — and maybe other high-flyers as well. If that’s truly the case, the declines in SHOP may well continue.

Why Has SHOP Stock Pulled Back?

Twice this year, I’ve asked what could end the run in Shopify stock. I’ve long thought the stock was overvalued from a fundamental standpoint, but technically there didn’t seem a downside catalyst.

Shopify continued to run over analyst estimates. Growth was impressive. The move into fulfillment created a new market — and, from a near-term standpoint, allowed investors and analysts to model ever-higher out-year revenue and profit estimates. (Indeed, one analyst in late August justified his Street-high price target of $481 by estimating $6 billion in fulfillment revenue in 2025.)

And while SHOP was hugely expensive based on any metric, there was at least a reasonable fundamental case, given the potential for growth. After all, investors long had questioned the valuations of stocks like (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), and those skeptics had missed out on huge gains as a result.

But what’s interesting about the pullback is that nothing really happened. It’s not as if Shopify posted a disappointing earnings report. Q2 earnings were reported on August 1st. SHOP stock gained another 28% over the next three-plus weeks. There haven’t been any competitive changes.

There’s only really been two pieces of news. Shopify acquired 6 River Systems for approximately $450 million. And it launched a secondary offering of its stock, which priced at $317.50.

Neither really seems material. The 6 River deal only represented a little over 1% of the company’s peak market capitalization. Shopify could have set that amount of cash on fire and not really moved. And the deal makes some sense, as it backs the fulfillment effort that clearly drove optimism toward the stock over the summer.

As for the secondary, the price looks light. But SHOP stock already had been falling before it was announced. And the company had executed an offering in December at $154. Few investors in January, or July, seemed to mind.

Valuation Concerns Hit Shopify Stock and Other High-Flyers

Instead, it just seems like investors suddenly decided to pay attention to valuation. After all, SHOP is not the only stock to hit a rough patch.

Roku (NASDAQ:ROKU) has dropped 39% in just a couple of weeks. The two most expensive tech stocks by price-to-revenue, Zoom Video Communications (NASDAQ:ZM) and CrowdStrike (NASDAQ:CRWD), have pulled back. SaaS names are down as well.

There simply seems to be a sudden reluctance to pay ever-higher multiples for growth stocks. And it’s not entirely clear why. It’s possible the debacle that is the WeWork IPO has led to concerns about a second tech bubble. A steady stream of IPOs this year — headlined by Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) — have added supply for valuation-tolerant investors, and maybe led to lower pricing across the space.

Or it simply could be that SHOP stock went too far even for momentum traders. And once the stumble hit, the declines allowed (or forced) those traders to switch sides.

Where SHOP Goes From Here

The problem is that the lack of a ‘real’ explanation is probably bad news for SHOP stock. It’s not as if the stock is somehow cheap on the pullback. It’s still valued at ~24x 2019 revenue estimates. If investors simply thought the stock ran too far, there’s plenty of room for the declines to continue. The same is true if the market has lost some trust in growth stocks more broadly.

Fundamentally, the case still is tough to make. There’s an argument that Shopify stock maybe should get a premium to eBay (NASDAQ:EBAY), whose e-commerce market share the company likely will surpass next year. Even at $313, SHOP stock still gets that premium. I can see a case that the secondary offering price of $317.50 is a bit of a floor: after all, if institutions were willing to pay that price, individual investors should be as well. But Shopify has busted through that level, with no signs of slowing down.

Rather, it simply looks like Shopify is going back to being a ‘normal’ growth stock. And even after the pullback, it’s still not quite valued as such. In fact, something close to perfection still looks priced in. And so the declines in SHOP stock may not be ending just yet.

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