Shopify is now an essential part of e-commerce, this fund manager says

Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP) continues to impress with the speed of its growth, exceeding expectations each quarter and recently hitting record transaction numbers over the Black Friday weekend. But even with the dramatic pullback last week, the stock is just too expensive for your investment dollars, says Kim Bolton, President and Portfolio Manager of Black Swan Dexteritas.

“It’s an extremely volatile stock,” says Bolton to BNN Bloomberg. “We’ve owned it. We’ve gotten in and out of it. Normally, we don’t go in and out but this is a stock that you have to trade. We have it down around C$145-$155, which is a long way away, but to actually buy it and put it as a core, that’s where we’d look at it on our shopping list. Maybe over the next year, you’ll see C$150.”

Shopify’s share price fell a whopping 13 per cent on Friday as investors reacted to an announced secondary stock offering of 2.6 million Class A shares, representing approximately 2.8 per cent of the company’s current float. Offered at $154 per share, the expected $400 million in proceeds will be used “to strengthen the company’s balance sheet, providing flexibility to fund its growth strategies,” according to Shopify’s management. (All figures in US dollars unless noted otherwise.)

Macquarie analyst Gus Papageorgiou questioned the need for the secondary share offering, which will dilute SHOP’s shares by about 2.4 per cent, stating, “It is not obvious that the balance sheet needs further strengthening,” he said.

The company is seeing continued improvements in its top line, showing a 58 per cent jump in total revenue in its last quarterly report in October,. The company recently reported its Black Friday and Cyber Monday sales numbers, with its vendors tallying a record $1.5 billion in goods and transactions, representing $37 million per hour.

Boulton says he’s bullish on Shopify because it has clearly established itself within the e-commerce infrastructure.

“We have an investment committee that’s made up of these serial tech entrepreneurs, and a group of that investment committee come in from the software and social media side,” he says. “We ask them, ‘What are you using [for advertising]? Are you using Facebook or Twitter, are you using Shopify and how are you actually using it?’ So, when you talk about advertising, those are the three that everyone talks about. Shopify is within that group.”