<p>There are three types of investors from Shopify (NYSE: SHOP). Those who bought Shopify shares in 2019 or earlier and are sitting on significant unrealized gains. Those who bought at or near its 52-week high of $ 593.89 and lose money on their bets. And finally, some were brave enough to buy in mid-March when it dropped as low as $ 322.
Source: Burdun Iliya / Shutterstock.com
Which one are you?
The buy-and-hold variety
The investor who bought Shopify shares in 2019 or earlier and still holds is a person who believed in CEO and founder Tobi Lutke’s vision to help entrepreneurs start their e-commerce companies by using Shopify’s e-commerce platform.
In May 2017, I recommended SHOP as one of ten growth stocks to buy. At the time, it was trading at $ 86. “Shopify does not make money, but it’s OK, because it’s too busy scaling the business to worry about profitability,” I wrote then. “Normally, it’s a business breaker for me, but when you increase revenue to 75% per quarter while taking market share, it’s OK to throw away your investment rules.”
Do not misunderstand me. I rarely make an exception about profitability. I can count with both hands the number of companies I have recommended in recent years that lost money. Shopify is one of them.
You bought Shopify at the 52-week holiday
We have all done it. We have become so happy to buy the best since sliced bread that we have thrown caution against the wind.
As I said earlier, Shopify reached a 52-week high of $ 593.89 on February 12th. It was not a coincidence on the same day that it delivered excellent results for the fourth quarter. Not only did it report 43 cents per share in Q4 2019, 79% higher than analysts’ estimate of 24 cents, but it also reported quarterly sales of $ 505.2 million, 47% higher than in the same period last year.
“Total revenue accelerated for the first time since Q4 2015,” SunTrust Robinson Humphrey analyst Terry Tillman wrote on February 12. “Management emphasized that Shopify now has 1.1 million merchants on the platform, compared to over 800,000 previously in 2019 and is now the second largest e-commerce in the United States.”
In addition, the company’s gross values increased by 47% during the fourth quarter, 400 points higher than analysts’ expectations. Shopify estimated that sales for 2020 would be between $ 2.13 billion and $ 2.16 billion, which is also higher than consensus.
Everything looked up for Shopify and then the new corona virus took hold during the first two weeks of March and reduced its stock to $ 322, which left many momentum as investors cried in their beer.
The last group of investors is happier than they are good. Buying Shopify shares in mid-March, after falling 46% from the 52-week high in mid-February and the S&P 500 was still on the decline, was what was done by brilliant people or happy people.
Since most experts agree that you can get burned when you try to market the time at the bottom, I think these mid-March buyers are the latter. However, a win is a win. Congratulations on your unintentional timing.
With that said, it seems that the pain that investors have suffered so far is not over. Not by far.
“The S&P 500 is currently trading at a forward P / E ratio of 17.3, which is above the 5-year average of 16.7 and the 10-year average of 15.0,” MarketWatch contributor Cam Hui suggested on April 14. ” In addition, we are entering the winning season for the first quarter, and the “E” in the forward P / E ratio will be revised significantly downwards. “
So, despite running a platform that helps businesses manage e-commerce businesses, Shopify drew its guidance for 2020 on April 2nd. This means that it does not know what the future will hold, and its customers work digitally.
Based on the guidelines, I would not be negative with Shopify, but the markets as a whole. Shopify shares may see over $ 300 sometime in 2020.
The conclusion of the Shopify share
In early March, I argued that Shopify would trade higher than $ 600 on New Year’s Eve if a global recession from coronavirus was prevented.
While I still believe it is possible, Shopify’s dividends and conference calls will fill in the gaps about what this whole mess means for its business for the rest of the financial year. When investors get a little more information about the situation, I think it will be easier for people to decide on its short-term focus.
If you stay for 2-3 years, I think you can buy at these prices, but do not be surprised if you get a cheaper starting point before and shortly after the May report.
Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, he had no position in any of the above securities.