Shopify is a superb company but an expensive stock, this investor says

E-commerce player Shopify (TSX, NYSE:SHOP) posted better-than-expected revenue for its second quarter, but higher operating losses along with a tepid guidance are bringing down its share price in Tuesday’s trading.

That’s par for the course with future-oriented stocks, says Ross Healy of Strategic Analysis Corporation, who advises shareholders to either live with SHOP’s volatility or get out.

Ottawa-based Shopify posted its Q2 2018 financials on Tuesday, reporting a subscription revenue increase of 54.6 per cent to $110.7 million on an adjusted net income of $2.5 million or $0.02 per share, compared to an adjusted net loss of $1.1 million or $0.01 per share for 2017’s Q2 (all figures in US dollars).

“The diversity of our revenue drivers and of our merchant base contributed to our strong revenue growth this past quarter,” said Amy Shapero, Shopify’s CFO, in a press release. “Our mission, our technology and our growth model position us, and our merchants, to thrive in the face of massive changes to retail.”

Shopify on Monday announced it would be offering $5 billion in mixed securities over the upcoming 25 months, a move the company called part of the ordinary course of business but which seemingly added to investor concern in Tuesday’s trading, where SHOP had already dropped 14 per cent since last Friday.

Chalk it up to the fact that for all its success over recent years, the company is still in its early stages, says Healy. “The problem with Shopify is that it’s still very, very expensive,” he says to BNN Bloomberg. “On a price to book, on a price/earnings ratio and everything, this is a company that’s still very much emerging.”

“This is a superb company, but you’re paying for the long term in the short term and when you do that, you can expect a tremendous amount of volatility,” he says.

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Healy says the company’s innovation in the commerce space as well as its partnership with e-commerce giant Amazon have set SHOP up with an enviable runway. Last week, the company announced that it would be opening its first bricks and mortar store in the ROW DTLA district of Los Angeles, while currently boasting over 600,000 merchants on its platform.

Still, the stock is not for the faint of heart, Healy says, since SHOP is bound to get buffeted by seemingly unrelated news in the sector. “All you have to do is look at Twitter and Facebook, and everybody will look around and say, ‘Well, what else is really expensive? Oh my goodness, look at Shopify!’ And down it comes. It’s contagious,” he says.

“I certainly like its concept and I like the long term but in the extreme short term, I couldn’t advise you at all as to what to do because that volatility is stunning and will likely remain so,” he says. “If you believe in the concept, you buy it and you put it away and you don’t look at it on a day-to-day basis.”