Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP) may have all the markings of a momentum stock, but underneath the sentiment-driven ups and downs lies a company with excellent growth prospects, says Zachary Curry, president and portfolio manager at Davis Rea.
Lately, the markets have been less than kind to Canadian e-commerce company Shopify, which has seen its share price drop 19 per cent since reaching an all-time high of C$232.65 back on June 20. The stock has been buffeted by investor concerns over its latest earnings report, which indicated a slow-down in growth and rising costs.
Shopify’s second quarter earnings released at the end of July beat analysts’ expectations for both earnings per share ($0.02 cents per share versus the consensus loss of $0.03 cents per share) and revenue ($245 million versus the Street’s expected $234.6 million). (All figures in US dollars unless noted otherwise.)
Yet it was a decrease in gross merchandise volume (GMV) growth for the quarter along with a more modest guidance going forward that raised concerns. Shopify’s GMV grew by 56 per cent to $9.1 billion, but that was down from 64 per cent growth for the quarter before and 74 per cent growth for Q2 of 2017.
Shopify stock wobbles
Since then, the stock has had trouble making up the lost ground, but Shopify shareholders shouldn’t worry, says Curry, who points to the Ontario governments’ recent announcement that it will use Shopify’s e-commerce platform for both in-store and online cannabis sales as evidence of the company’s value.
“Certainly, the way that the world is going is more online,” says Curry, to BNN Bloomberg. “Larger companies are going to be able to one-stop shop with Shopify. Smaller companies, it’s way easier to sell their wares online.”
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“With the Ontario government on the cannabis side with Shopify, we think it’s a huge positive, only going online and using Shopify as the backbone,” he says. “And I think you’re going to see more and more things like that where they’re good at it, they know it, it’s easy for people to get their businesses up and running and overall, it’ll be a positive longer term.”
So far, Shopify’s share price has been resilient in the face of adversity, rallying over the past year to overcome a number of setbacks related not just to earnings reports but to attacks from well-known short-seller, Citron Research. Nonetheless, Shopify shares are currently up 45 per cent for the past 12 months.
“We might have some pretty big gyrations, given the valuations and the volatility, but overall longer term, we’re positive on that name,” says Curry.