Shopify (NYSE:SHOP) has recently become controversial as long-term investors battle with short sellers over the business model. Although I believe SHOP’s management will successfully take the necessary steps to make it into an important ecommerce company, I do not think Shopify stock will repeat its past exponential up move in the next few months.
Shopify has been a darling of Wall Street since its IPO in 2015. On Oct. 25, Shopify reported strong Q3 earnings that beat Wall Street expectations on both the top and bottom line.
SHOP bulls happily highlighted many of Shopify’s competitive advantages, starting with a balance sheet without any debt and a projected annual growth at over 30%.
The bulls have faith in CEO Tobias Lütke’s management team to continue to innovate through investing in emerging technologies, such as the use of artificial intelligence (AI) in e-commerce, and to grow the company organically and through strategic partnerships.
Shopify Stock Fundamentals
Management is also looking at international expansion, especially in non-English-speaking countries, as the next strategic area of growth.
For example, Shopify recently launched its payment gateway, Shopify Payments, in Germany, making bank account transfers possible. Several of Canada’s provinces are using Shopify as their cannabis website storefront, giving Shopify even more global visibility.
On the opposing side of the coin are the nervous investors and short-sellers who are looking for any excuse to short Shopify stock. Shopify critics were not entirely impressed with the recent earnings call which showed a slowing down on a relative basis.
The bears point out that SHOP stock’s hefty valuations would be hit in case of an economic slowdown. The broader market just does not seem to want to go up anymore like it did for the past several years, a fact that would slow the momentum in high-flying stocks like SHOP.
Then there is the constant threat of Amazon (NASDAQ:AMZN) taking a bite off Shopify’s revenues, which would affect the Shopify stock price negatively.
Finally, many investors are quite concerned about the various reports by short seller Citron Research which regards Shopify’s business model and marketing claims a ‘get-rich-quick-scheme.’
Invest in Shopify Stock?
The answer depends on your evaluation of the fundamentals of the SHOP stock as well as the noise surrounding the company at this point.
After the recent tech sell-off, SHOP has suffered from a damaging technical picture. Its technical chart still looks rather weak, and it is pointing to more choppy action in the short-term, possibly between $125 and $145.
Long-term technical chart looks even weaker, suggesting a potential fall to the psychologically important $100 level. SHOP stock’s 52-week price range has been $92.41 (Dec. 5, 2017) — $ 176.60 (July 24, 2018).
If you already own SHOP stock, you might want to hold your position. However, within the parameters of your portfolio allocation and risk/return profile, you may consider placing a stop loss at about 5-8% below the current point.
If you are looking for an entry signal to buy SHOP shares, from a technical chart perspective, I am not expecting the stock to make a significant leg up until the end of January. You may want to wait for the release of the next quarterly statement in early 2019 to re-evaluate the balance sheet and the fundamentals.
If you are willing to stay in the SHOP stock 4-5 years, I trust that the management will work through the main issues surrounding the health of the company and the stock will reward patient investors handsomely.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
