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Shopify is a great company but a bad investment right now, this investor says

Shopify's stock

After its recent selloff, Shopify Inc.’s (Quote, Chart TSX, NYSE:SHOP) share price may look tantalizing, but this stock should remain off-limits, says Don Lato of Padlock Investment, simply because it’s still way over-valued.

Last month, the e-commerce company released its second quarter earnings report, which featured a healthy consensus beat on revenue along with adjusted earnings per share of $0.02, a penny better than Q2/17. (All figures in US dollars unless noted otherwise.)

That topline made for a 62 per cent year over year increase, which was impressive but a notch lower than the 68 per cent growth recorded over the previous quarter. The slowdown in growth, combined with tepid guidance and news that the company would be offering $5 billion more in mixed securities over the next 25 months, were together enough to spook investors and drive down the stock, which is now 22 per cent off its most recent high.

Wishpond

But for those of us who like buying on the dip, think again, says Lato, who worries that SHOP could break through its 200-day moving average (currently at $133.05) and get into real trouble.

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“It’s a great company, obviously the darling of the Canadian tech world these days, but I just can’t buy stocks for my clients at 200x next year’s earnings,” says Lato, president of Padlock Investment, to BNN Bloomberg. “The stock is sort of bouncing off its 200-day moving average as of late, and so, I would be very concerned that if it broke that 200-day and I was holding it, I might be tempted to at least trim it a little bit.”

“As long as it holds, you’re fine, but I certainly wouldn’t be buying it here, especially since it’s so close to that 200-day,” he says. “I’d wait for an earnings miss where —and it’s happened many times before— the company has missed or a short report has come out and you get a bit of a break in the stock and a little better buying entry, maybe 150x instead of 200x.”

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About The Author /

Jayson MacLean
Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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