In the time of Bitcoin, investors are desperate for something to believe in. They see their friends getting rich on decryption keys; they see stocks in good, credible tech companies priced to the skies. And they think: I need to get in on the action, I need to make some serious money right now. Then they hit upon Shopify Inc. (US) (NYSE:SHOP).
To these investors, Shopify is the answer to their prayers. It is up 160% so far in 2017, but a big dip in October makes it seem cheap, so they are bidding it up. The stock starts trade on Nov. 27 at $112 per share, having gained 6.5% just in the last five trading sessions.
What Could Go Wrong?
The Reasons to Like Shopify Stock
For this kind of speculation, the financials look good. Sales are rising nearly 20% per quarter, the reported gross profit is more than half of sales and the losses are steady. Shopify appears to be investing ahead of growth.
Luke Lango wrote recently the stock is set for another huge rally, riding the train of social and e-commerce growth. Shopify got through the critical third quarter report that worried James Brumley with strong growth, no debt and a net loss of under $10 million.
Lango particularly likes the fact that Shopify software can capture sales wherever they happen — on a merchant’s own website, on a third-party site, or through social media platforms. E-Commerce growth, he writes, is coming from everywhere.
This is all true. E-commerce is a global phenomenon. Mass ownership of smartphones means even someone in a Zambian village can hit the “buy” button. The use of various channels, including social media, to sell is also global. So is the desire by people to own a business, to make money, to become entrepreneurs.
Tough for Bears
In this environment, it’s tough to be bearish on SHOP stock, as I am. I’m just not a big fan of companies that don’t make money in a dicey global economy.
Citron Research, which makes a living calling out dodgy schemes, like that of Valeant Pharmaceuticals International Ltd. (NYSE:VRX) under Michael Pearson, is a lonely voice in today’s market. Citron has called Shopify a “get rich quick” scheme, a charge Shopify denies.
Joseph Hargett says the stock of Shopify will remain problematical until it addresses the charges in the Citron report with something other than simple denials and rhetoric. He is waiting for the Federal Trade Commission (FTC) to act.
He, along with Citron’s Andrew Left, will have a long wait.
I don’t expect the FTC, or any federal agency, to make a concerted move against any business that doesn’t personally annoy the president of the United States for quite some time. The Trump administration wants a rising stock market — and doesn’t care how it gets it.
If that’s through affiliate marketing in the developing world, the U.S. government is going to yawn and ignore it.
The Bottom Line on Shopify
Investing manias have a logic all their own. I have lived through several, and this has all the hallmarks of one.
Even if the U.S. government ignores Shopify, there are other governments that can act — or at least raise questions. And one is bound to, at some point.
Sadly, when the mania breaks it will hurt all stocks, the bad as well as the good. You can ride the wave if you like, but just remember, all waves break as they approach the shore.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.