It’s no news that Shopify (Shopify Stock Quote, Chart TSX:SHOP) is a stock that leans towards volatility, taking chart-watchers on a rollercoaster ride on practically a weekly basis.
And those emotional ups and downs can be part of the problem, says Jeff Parent, chief investment officer at CastlelMoore, who counsels that the wise investor should have a clear game plan when it comes to getting in and getting out of a stock like Shopify.
SHOP plunged at the end of last week as investors responded to yet another call out from short-seller Andrew Left of Citron Research, who warned that evolution in the online retail climate could bring about more intense competition for Shopify from tech giants like Microsoft and Facebook.
“Just when the business seemed unstoppable, the obvious change in narrative for this market darling will soon cause it to fall victim to the forces of gravity from its stratospheric valuation –which was based on no competition, no regulatory risk, and flawless execution,” Left said.
Over the last couple of years, Citron has taken a number of swings at Shopify, with the stock dropping each time in response. Yet, SHOP has proven itself capable of bouncing back on each occasion. The stock ended 2018 up 48.5 per cent and then came roaring up the charts over the first three months of 2019, where SHOP climbed from $182 as of January 2 to a high of $280 by April 1.
Parent cautions that Shopify’s volatility means investors need to be ready to pull the plug when the time comes.
“I do like it and continue to hold it and haven’t reduced it at all, but I have a couple of horizontal red lines on the current price: a reduce at $255 and exit at about $220,” says Parent, in conversation with BNN Bloomberg on Friday. “If it ever gets back down to there, I’m going to be completely out.”
“In my mind, right now it’s like one of those Amazon stocks — it’s going to be $1,000 soon, so I probably have a negative bias in this, as in I don’t want to sell it. That’s not a technical thing, it’s an anti-technical thing, so you’ve got to fight that,” he says.
Shopify passed a milestone in February with the company’s fourth quarter and fiscal 2018 results, which had the company passing US$1 billion in sales for the first time. The company reported a Q4 loss of US1.5 million on revenue of US$343.9 million for the period ended December 31, a 54-per-cent year-over-year increase and better than analysts’ consensus estimate of US$327 million.
“It’s a great price momentum stock,” says Parent. “It had quite a drop [last Thursday], which is definitely a concern. A five-per-cent drop on a stock like this doesn’t look like a big drop when you’re looking at the bigger picture, but it means it’s a volatile stock, even at this price level.”