Cabot Professional Stock Evaluation Contest Winner! Thanks to Enrique B. for submitting this week’s pick, Shopify (SHOP).
If you would like a complete evaluation of your stock pick, please visit our Contest Page.
Shopify (SHOP) stock has been one of the leading glamour stocks of the 2016–2017 bull market. The company’s cloud-based commerce platform allows small- and medium-sized companies to design, set up and manage online shops, giving them access to much larger markets than would otherwise be possible. The company’s client list even extend to big companies and brick-and-mortar stores. Entrepreneurs pay just $29 per month, while larger customers can pay as much as $2,000 per month. The company’s services are now used by more than 500,000 stores in 174 countries, up from 375,000 at the start of 2017.
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• Square (SQ)—up 173%
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• Coherent (COHR)—up 121%
• Universal Display (OLED)—up 117%
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Revenue growth has been excellent over the years, with a 112% gain in 2013, 109% in 2014, 95% in 2015, 90% in 2016 and 75% in both the first and second quarters of this year. The company is not yet profitable, as it has been plowing its free cash into growth, but it’s nearing breakeven and is expected to turn its first full-year profit in 2018.
Here’s a weekly chart showing the performance of SHOP stock since June 2015. You can see the stock’s remarkable advance from 19 in February 2016 to 124 last month.
The dip at the end of the Shopify chart is a correction caused by a negative report from Citron Research, a company that specializes in shorting stocks (betting against them) and then releasing negative news about them. The stock dipped to below 90 immediately after the report, but has recovered to around 98. There’s no way to know what the long-term effects of the short-seller’s attack will be, but investors appear to be sticking with it for now.
The more important factor in SHOP’s performance will be the company’s third-quarter earnings report, which will be released in early November (no confirmed date yet).
SHOP has been damaged by the negative report, but a good earnings report will likely earn forgiveness from investors. If you buy now, keep it small ahead of earnings.