Shopify (SHOP): Recent IPO building launching pad

By Michael Cintolo, Chief Analyst, Cabot Growth Investor and Cabot Top Ten Trader
From Cabot Wealth Advisory 10/8/15 Sign up for Cabot Wealth Advisory—it’s free!

So where do you find such potential winners? Recent IPOs (initial public offerings) are a great place to look. As newly public stocks, they have more potential upside as institutional investors build positions. Plus, these companies tend to be early (sometimes very early) in their fundamental growth phases, which of course can lead to huge long-term moves if conditions remain solid and if management pulls the right levers.

One recent IPO that I’ve written about in a prior Cabot Wealth Advisory is Planet Fitness (PLNT), but I’m not buying it yet because the chart has turned sloppy. PLNT looked ready to get going a week ago, but actually fell down the stairs late last week as the market rallied. So it’s still on my back burner.

Shopify (SHOP) is another recent IPO that’s caught my eye. Here’s what I wrote about this high-potential company in Monday’s Cabot Top Ten Trader:

“Shopify is a company few have heard of, but chances are, many of you have used it at one time or another. The company’s cloud-based software platform is the backbone of e-commerce efforts for more than 175,000 businesses today (including Facebook and Tesla Motors, although it mainly targets small and mid-sized companies); it helps firms build and manage websites, process payments and sell goods across multiple channels (social media, mobile, etc.). Business has been great, but Shopify is strong thanks to a slew of positive announcements lately, the biggest of which was the selection of Shopify as the e-commerce provider for Amazon Webstore merchants—this could bring in thousands of new customers and boost usability for many current customers that use Amazon. The company has also broadened its appeal recently by making it easier for merchants to sell on Twitter and Facebook, allowing for Apple Pay payments and making it easier to buy and print shipping coupons from the U.S. postal service. Revenue growth has been rapid, with all aspects of the business following suit—gross merchandise volume flowing through its customers’ sites was up 100% in the second quarter (to $1.6 billion), with Merchant Solutions (driven by payment volumes) up 140% and a 67% gain in monthly recurring revenue from subscriptions. Earnings are still in the red as the company reinvests in the business, but there’s little doubt cash flow will surge as the firm gains scale. We like it.”

The stock came public in May and, after a rally to 40 in early August, it’s etched a decent-looking launching pad. I’m not opposed to nibbling here, but again, starting slow and adding as the market gets going makes sense in this still-tricky environment.

To know when to buy (and how to handle) potential big winners like SHOP, you should give my Cabot Top Ten Trader a try. There’s no risk, and we have a history of getting our subscribers into the best stocks during every uptrend (and out of stocks when the market turns ornery)