Shopify (NYSE:SHOP), the Canadian e-commerce software company, is continuing its rise into 2020.
The parabolic market is especially parabolic when it comes to this stock. In the last year its value is up over 200% — from last year’s $158 per share to the Jan. 9 opening bid of $413.93. At that price, the market capitalization is $48 billion, on estimated yearly revenue of $1.6 billion.
Yes, that’s up nearly 32% from a year ago, but Shopify doesn’t do profits. It’s foolish of me to ask whether the company is “worth” 34 times revenue, because that’s what the market says it’s worth.
Shopify is becoming the poster child for a go-go market that will crash at some point and take a lot of folks’ retirement savings with it.
My History
I have been calling Shopify a “bubble stock” since October 2017, when short-seller Citron Research accused it of being an affiliate marketing scam. At the time the shares had just breached $100 each, but the ride was just beginning.
By last January, when I warned about Shopify’s “dodgy customers,” the shares were at about $140. I’d gained a sense of humor about it, calling myself an old fogey.
In March I said the bubble could only keep growing for so long. The shares were at $190. In December I said you should avoid the stock’s dip at all costs. The shares gained $40 that day, from $336 to $376.
It should be clear from this that I know nothing about Shopify. But I’m not the only skeptic. Vince Martin, who had been bullish in March, wrote in September that the stock’s bubble had burst. This was at about $330 per share. Mark Hake wrote “buyer beware” on Shopify last month, when the shares had just topped $400.
We’re not all old fogeys, thank goodness. Chris Tyler was bullish on the stock less than two weeks ago, predicting a march to $500. So far, he’s right.
Why, Shopify, Why?
It’s important to note here that Shopify only has 103 million shares outstanding. Only 1%-2% of the shares trade on an average day. There are also, by last count, over 4 million shares held short.
I never recommend shorting a stock for just this reason. You can be right on the fundamentals, but that just means there’s more lift in the shares, because you’re borrowing shares to go short and must eventually buy them back. Just ask owners of Tesla (NASDAQ:TSLA), where over 20% of the shares were being sold short last month. They’re since up 44%, a $140 per share gain, and at $85 billion Tesla is worth more than twice Ford Motor (NYSE:F), and 63% more than General Motors (NYSE:GM).
Bull markets can go parabolic, as this one is, but that’s not what pops the balloon. It’s some external event that either shows the market its top (like AOL’s ability to gain 60% of Time Warner in 2000) or destroys the cash backing the assets (as in the 2008 crash).
Neither of those things has happened yet.
The Bottom Line on Shopify Stock
The fact that the market and Shopify stock remain buoyant doesn’t mean they always will.
Just the opposite.
At some point everyone is in. Bulls are confident because they still see $3.4 billion of cash on the sidelines — or more accurately, in money market balances — as of early November.
I’m part of that crowd. My retirement account is about one-quarter in cash. Almost everything I own is up. To friends and family, I look like a genius.
I’m a reporter, not a genius. Shopify remains the bull market’s canary in the coal mine. When it stops singing, get out.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
