Sometimes it’s perfectly okay not to be No. 1. By investing in Shopify (NYSE:SHOP) stock, you’re taking a stake in a company with a tiny fraction of the capital, market share and brand-name recognition of Amazon (NASDAQ:AMZN) in the global e-commerce space. That’s not a bad thing, because SHOP stock is much less expensive with plenty of room for price appreciation.
Speaking of which, the Shopify stock price has more than doubled in 2019 so far, but it hasn’t been smooth sailing lately: During a particularly painful September, SHOP stock declined around 20% and this included an eight-consecutive-trading-day losing streak. Will October be the month in which traders stanch the capital outflows and bring Shopify stock back to its former glory?
The Market Punished SHOP Stock for the Wrong Reason
One of my favorite investing strategies is to buy shares of a stock when the market has irrationally beaten it down. The idea here is to look for the root cause of the price decline and assess whether it was caused by a serious error on the part of the company’s management, or by a forward-thinking gamble, which could pay off in the long run.
One of the main reasons the Shopify stock price fell in September was because the company acquired 6 River Systems, a provider of cloud- and robot-based warehouse-order fulfillment solutions. It’s not uncommon for the market to lower the price of a stock when a company buys out another company, since that’s an expensive proposition and there’s always risk involved in buyouts.
However, in case you haven’t figured it out by now, I like to think differently than 99% of investors; if they’re all selling, I’m looking for a buying opportunity. When it comes to SHOP stock, I now view it not only as an investment in e-commerce, but as a stake in the cloud and robotics niches — both of which have a bright future, in my ever-so-humble opinion.
6 River Systems co-founder and co-CEO Jerome Dubois has an ambitious vision as the two companies merge under the Shopify corporate umbrella: “By joining Shopify, we’re changing the game of fulfillment. Together, we will help thousands of businesses improve their fulfillment operations, with an easy-to-learn solution that can more than double productivity and improve accuracy.”
The acquisition is expected to cost Shopify around $25 million in 2019, which is a small price to pay for what 6 River Systems is bringing to the table. Don’t misunderstand — it’s going to take time to recoup that financial outflow, but using leading-edge technology will position Shopify for enhanced profit potential in the months and years to come.
Shopify Gets Into the CBD Game
Another exciting development is Shopify’s announcement that the company will add features on its e-commerce platform to assist its American merchants in selling CBD-based products in jurisdictions that allow it. Shopify’s website explains it more precisely than I ever could:
“Shopify will permit US merchants to sell topical and consumable hemp and/or hemp-derived CBD products, provided that they are operating in a state where the sale of their product is explicitly permitted and they comply with all applicable laws and regulations, including those in the jurisdiction of their customers.”
As Harvard Medical School Professor Peter Grinspoon explains in a blog post about hemp and cannabidiol, studies have found that CBD can be effective in treating the symptoms of anxiety and chronic pain, and that “In numerous studies, CBD was able to reduce the number of seizures, and in some cases it was able to stop them altogether.” Therefore, I see a bright future for the CBD market and I feel that Shopify is smart to facilitate CBD sales on its platform.
The Takeaway on Shopify Stock
What some investors see as risky, I see as forward-looking and savvy. In the particular case of SHOP stock, I’m ready and willing to side with the company and recommend the shares as a bet on exciting future developments; not everybody will see it the way I do, but the contrarian in me is more than happy to stray from the beaten path with Shopify stock.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.