When a company has a 300+ forward price-to-earnings ratio and its market value has more than doubled in a short time period, investors might start to think about trimming. But Jim Cramer believes that online retailer Shopify (SHOP) - Get Report is just getting warmed up.
"When I think of Shopify, I think of the ultimate e-commerce store for people who want to look like the big boys but can't. Shopify will help you do it -- and even lend you money to get you to the next level," Cramer said during his latest monthly video-conference call with members of his Action Alerts PLUS club for investors.
Cramer used the call to outline how he picks which hot companies with high P/E ratios to buy and which to take a pass on. In Shopify's case, the expert said that he initially "blanched" at the idea of buying SHOP because of its "absurd" P/E ratio -- about 346 on a forward 12-month basis. "I said to myself: 'That's almost like Amazon's valuation a few years ago,'" Cramer said.
That's little surprise given that Shopify shares are up some 135% year to date, giving the company about a $36.4 billion market capitalization. But Cramer said Shopify's market cap -- one of things he looks at closely with high-P/E companies -- isn't out of line given the company's growth potential.
In fact, Cramer believes one of the reasons SHOP has rallied so hard thing year is because "it is most likely one of the most-coveted free-standing companies out there. It would be such a natural for Salesforce or Adobe to buy. But this company is not for sale."
Watch Jim's Complete Video-Conference Call
Club membership includes exclusive access to Cramer's private video-conference calls each month, in which Jim gives his latest market outlook and answers e-mailed questions from club members. Membership also includes lots of other great benefits, including:
- A complete rundown of all of stocks that Jim holds his charitable trust;
- E-mail alerts that give you a chance to buy or sell any stock before Jim makes a trade for the trust;
- Custom research throughout each trading day from Jim and his team of stock-market analysts. You get to see what Jim is watching every market day as he and his team make investment decisions.
Click here to join Action Alerts PLUS today!