I’m not going to make a lot of friends with this piece, but it won’t be the first time I’ve put my reputation on the chopping block. When everybody and his uncle is euphoric about Shopify (NYSE:SHOP) stock, that’s my signal to unload shares, take profits and run.
Remember, you can always buy shares of Shopify stock at a later time — preferably, when sentiment is bearish again. It’s easy to forget that just as markets move in cycles, so do individual stocks, and if the “Cramer bump” is your reason for buying shares, I would strongly urge you to reconsider.
Everybody Loves E-commerce and SHOP Stock
While the undisputed leader in the space is undoubtedly Amazon (NASDAQ:AMZN), pretty much the entirety of the e-commerce market has been the focus of much fanfare over the past decade.
As reported in a research study authored by the University of Chicago’s Austan D. Goolsbee and Stanford University’s Peter J. Klenow, “The e-commerce share of retail spending in the U.S. has almost tripled in the last 10 years to 10% overall and more than 50% in several major categories.”
So yes, I get it: e-commerce is huge and is here to stay. Retailers all need to use e-commerce nowadays to sell their wares, and the Shopify stock price has certainly benefited from the millennial generation’s penchant for buying anything and everything online.
The contrarian value investor in me, however, hesitates to buy a stock that’s more than doubled year-to-date, especially when the company’s third-quarter earnings were entirely unimpressive. To be more specific, the analyst consensus expectation was a gain of 11 cents per share, while the actual result was a loss of 25 cents per share.
Along with this wide earnings miss, I was also discouraged by the report that Shopify’s third-quarter 2019 non-GAAP operating expenses had increased year-over-year by a whopping 35.6%. I’m an advocate of frugality, and if SHOP is attempting to spend its way to success, I’m not on board with that plan.
Thanks, Cramer, But No Thanks
When a stock rallies by more than 100% in less than a year’s time, it’s hard to find friends when you’re sounding the alarm of caution.
Analysts, my favorite lagging indicator, are feverishly optimistic on SHOP stock, with their average target price set at $361.58 and 16 out of 29 analysts giving Shopify stock a buy/overweight/outperform/buy-with-both-hands rating.
Few things in life give me a deeper, more abiding pleasure than contravening financial analysts; perhaps the only exception is doing the complete opposite of whatever Jim Cramer recommends. As a natural spendthrift, Cramer’s statement that “They have a loss but they are spending money in order to grow” makes my blood boil, while his admonition of “You will regret that you sold it. You don’t know what you are doing” is, to me at least, pure comedy.
Thanks for the “help” … but I do know what I’m doing. I’m electing not to buy shares of a stock that has no price-to-earnings ratio because its earnings-per-share is negative. I’m choosing to eschew SHOP stock shares because the company has been spending truckloads of capital while its earnings badly underperformed analysts’ expectations, which weren’t particularly high in 2019’s third quarter.
But then, we live in a culture where spending our way to prosperity is a way of life and “buy high, sell higher” works — until it doesn’t.
If the e-commerce craze is at all emblematic of the shop-’til-you-drop zeitgeist we’ve cultivated, I’ll pass on Cramer’s hopium hit and wait patiently on the sidelines while SHOP stock traders wager their paychecks on another blockbuster holiday season.
The Takeaway on Shopify Stock
If you take anything away from the preceding rant, I hope it’s a distaste for the spending-as-a-solution culture that has informed how Americans think, behave … and invest. If you choose to buy SHOP stock and it tanks, don’t blame the market, or the analysts, or even Cramer — blame yourself for buying the hype, and shopping ’til you drop.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.