At the beginning of October, famed short-seller Citron Research targeted high-flying tech darling Shopify Inc (US) (NYSE:SHOP). Citron called out the Shopify business as a get-rich-quick scam, likened the business model to Herbalife Ltd. (NYSE:HLF), and claimed SHOP stock was way, way overvalued. 

That knocked down SHOP stock.

But not by much, and not for long.

SHOP stock traded at $117 and was up 170% year-to-date prior to the Citron report. The Citron report hit the tape and Shopify stock fell 20% to $92 and change by Oct. 10. But the stock was still up 155% year-to-date.

Now, SHOP stock has rebounded sharply off that Oct. 10 low. Since then, it’s up 13% to just shy of $105.

Despite the recent rebound, Shopify stock still has a lot to prove when the company reports third quarter earnings on Halloween. Trick, or treat?

I’m bullish into Shopify earnings. The numbers will be very good, and the company will likely prove the legitimacy of its business model while quelling Citron-inspired concerns. Strong numbers and a strong call could send this stock materially higher and get it back on track to its winning ways.

Shopify Management Will Refute Citron

Management is hyper-focused on putting out the flash fire that Citron started.

The company has issued a statement at the top of its investor relations page vigorously defending its business model. And there are number to prove the legitimacy of its underlying business, including a data point that every 90 seconds a store using Shopify makes its first sale, as well as another that reveals that in the last 12 months, more 131 million consumers have bought from a store using Shopify.

Shopify CEO Tobi Lutke took to Twitter Inc (NYSE:TWTR) to call out Citron’s Andrew Left as a “short-selling troll”. He also said that he would address the concerns brought forth by Citron on the next earnings call.

All in all, it’s safe to assume that SHOP will be bold and resolute in defense of its business on the third quarter call. Management did not take Citron’s report lightly, and it looks like their response will likewise not be light.

That response could also be quite convincing.

Spend Big to Win Big

As I’ve detailed before, the claims brought forth by Citron are largely misrepresented. Shopify is far from a get-rich-quick scheme. The company is an enabler of e-commerce for hundreds of thousands of small- to medium-size businesses around the globe that would otherwise be eaten alive by Amazon.com, Inc. (NASDAQ:AMZN). In this sense, Shopify actually does a great service in giving entrepreneurs a tool to level the playing field.

Shopify’s margins aren’t trending up because its still in the hyper-growth phase. The company can dial back its heavy investment at any point to turn a profit, but why do that? Look at Amazon as a case study. You need to spend big to win big. Once you’ve won big (gained market dominance), then you turn on the profit-making engines. That is exactly Shopify’s plan.

Plus, SHOP stock isn’t overvalued. Citron points to Shopify’s 17-times sales multiple and says that its out of whack with peers.

But that is because Shopify’s growth is out of whack with peers. Revenue grew by 75% last quarter. Workday Inc (NASDAQ:WDAY) increased revenue by 41% last quarter, while both salesforce.com, inc. (NYSE:CRM) and Square Inc (NYSE:SQ) increased sales by 26% in the same period. Wix.Com Ltd (NASDAQ:WIX) reported 51% revenue growth last quarter, while ServiceNow Inc (NYSE:NOW) showed a 40% jump.

While I don’t expect management to discuss things like valuation on the call, I do expect them to adequately, appropriately, and convincingly prove the legitimacy of Shopify’s business as an enabler of e-commerce for small- and medium-sized business as well as a catalyst for rising entrepreneurship.

Bottom Line on SHOP Stock

I liked SHOP stock well before Citron entered the scene with an off-base short report.

I bought the dip after that report.

And now I think SHOP stock could explode higher over the next month. The Q3 call will be very interesting. Overall, I am bullish on management’s ability to convincingly defend the business model.

Consequently, I’m using this pre-earnings consolidation as a time to buy more. SHOP is just getting started (it’s hardly scratched the surface of its total addressable market), and I continue to believe SHOP stock will follow an AMZN-like trajectory over the next several years.

As of this writing, Luke Lango was long SHOP and AMZN.