Shopify is no Herbalife, this analyst says

All eyes will be on Shopify’s (Shopify Stock Quote, Chart, News: TSE:SHOP, NYSE:SHOP) quarterly report due next week, but not to worry, says analyst Tom Forte, the Canadian stock darling may have a bit of explaining to do but overall, it’s still solid.

One of the best performing Canadian stocks this year, Ottawa-based Shopify has seen its share price take a tumble this month in response to allegations from short seller Citron Research that the company is over-valued and, more strongly, that Shopify is in some sense little more than a get-rich-quick platform akin to nutrition product company (and alleged pyramid scheme) Herbalife.

Not even close, says Forte, who claims that Shopify is still one of the most exciting e-commerce companies out there. “To compare Shopify with Herabalife is completely off-base,” says Forte, managing director and senior research analyst at investment banker D.A. Davidson, in conversation with BNN.

Forte nevertheless is hoping that next week’s report will come with some fill-in-the-blanks details to assuage investors and whatever fears that may have been raised by the Citron attack.

“The strongest point [of the short argument] is on affiliate marketing,” says Forte. “To the extent that a small- or medium-sized enterprise reads a blog and then clicks on a link and opens a Shopify account, I think an argument can be made that while they’re employing the best practices of their industry right now that they could further disclose if that blogger is getting paid in that instance.”

So far, Shopify CEO Tobias Lütke has refused to admit that there’s any substance to the Citron claims and has instead resorted to calling Andrew Left of Citron a “short-selling troll” and has promised to respond to the allegations with the company’s next financial report. “The irony of an outfit like Citron accusing any business of being a get-rich-quick scheme should not be lost on anyone,” writes Lütke in a tweet.

Shopify’s share price which had reached a high of $150.75 in September, fell to as low as $115.76 on October 10, a week after Left released its claims. It has since recouped much of that ground, closing today up almost five dollars to $135.13.

The company recently announced plans to add up to 500 new full-time positions and will open up another office in Waterloo to handle the expansion. Shopify currently has about 1,900 employees.

As far as Shopify’s business operations go, Forte says he’s impressed by the company’s -commerce platform and its ability to hold onto the “winners” amongst the hordes of small business enterprises that spring up.

“Historically, when you go after small-to medium-sized enterprises, you have two challenges: one is there’s a lot of churn because a lot of these businesses fail and then two, the success stories often re-platform on bigger platforms,” says Forte. “What Shopify has been able to do with their Shopify Plus enterprise offering, it’s enabling them to attract large retailers to their platform.”