Shopify stock is still too pricey, this investor says

After a steep drop off in share price, Shopify (Shopify Stock Quote, Chart, News: TSX:SHOP, NYSE:SHOP) may now be looking attractive, but it’s not the only software option out there for small and medium-sized businesses.

Nor is its stock a cheap pick up, even at reduced prices, says Greg Dean, a portfolio manager at Cambridge Global Asset Management.

It’s still a few weeks away from the release of Shopify’s first quarter F2018 financials on May 1, but investors are looking ahead anxiously, nonetheless, hoping that those Q1 results will breathe some life into SHOP, which has lost over 30 per cent of its value since hitting a record high on March 20.

The tumble is said to be related to a wider unease with large cap tech stocks like Facebook and Google’s Alphabet, where many see regulatory challenges just around the corner. In Shopify’s case, the downturn reportedly connects to another attempt by short-seller Andrew Left to discredit the e-commerce company, this time by alluding to a too-tight link between Shopify’s and Facebook’s fortunes.

The Citron Research founder argued that Shopify’s growth “might come to an abrupt half” if Facebook were to alter its business model in response to privacy concerns. Shares of SHOP fell 15 per cent in five days after Left’s attack, while the company denied the concerns.

“Shopify offers the technology for businesses to sell on their own websites, in retail stores, on marketplaces like eBay and Amazon, and on social channels like Facebook and Pinterest,” replied the company in a statement. “The power of our platform is that we offer one interface for merchants to sell anywhere and everywhere. It’s incorrect to say that our merchants’ success is tied to Facebook and its data. It’s similarly incorrect to say that our company’s success is based on our Facebook advertising.”

Yet while Shopify’s success in the e-commerce space makes for a good story, especially to Canadians, the company is not the only one providing website services to small- and medium-sized businesses, says Dean, who points to Wix and Hubspot as companies with tangential product offerings to Shopify’s.

“Because we’re in Canada, we know about it, we’re probably users of, at least, websites that are powered by Shopify,” Dean said in conversation with BNN. “What they’ve been able to achieve is to address a very large market by adding services on top of their initial offer. I still think it’s quite early days, but it’s very expensive. Our tech analyst used his global e-commerce lens and said, ‘If you’re interested in this business, then here are two which I think are just as good but are cheaper and I think have equally as long a runway.’”

“Our job is to separate good stocks from good stories, and I think that’s where people do small- and mid-cap investing poorly — they fall for the good stories,” he said. “Shopify is one where even if you fell for the good story you would have been very well compensated.”