Shopify is not a stock for value investors, this fund manager says

It’s hard to argue with success, in this case with Canadian e-commerce company Shopify (Shopify Stock Quote, Chart TSX:SHOP) and the stock’s ability to impress at every turn. Now up a sparkling 58 per cent over the short span of 2019, is SHOP now overbought?

More than likely, says Colin Stewart, CEO and portfolio manager at JC Clark Limited, who claims that the fundamentals aren’t there for Shopify.

“It’s a great Canadian growth story and I think it’s good for the Canadian market to have some tech superstar companies like this,” Stewart told BNN Bloomberg Tuesday. “[But] we are more value investors, so when we look at the underlying earnings and EBITDA of this business, it’s very hard for us to get there on valuation.”

“If you’ve been lucky enough to own Shopify, you must be pretty happy. The stock has had a miraculous over the last number of years,” he said. “Given that it’s up 750 per cent in the last five years, I might be tempted to take a bit of money off the table.”

Shopify’s share price had a number of pullbacks last year, including at times when investors reacted to a number of short-seller reports on the company. But the resilient stock nevertheless finished 2018 up 49 per cent, in a year during which much of the tech sector fared poorly. Even a further short-seller attack last month —this time claiming that SHOP’s revenues were too tied to Facebook’s fortunes— did little damage, causing just a short pause in the stock’s momentum.

Ahead of Shopify’s first quarter fiscal 2019 financials due next Tuesday, the company is looking to build on its last quarter’s successes, where it passed the $1 billion mark in sales for the first time. SHOP ended its fiscal 2018 with $1.073 billion in revenue, a 59 per cent increase over 2017, while its net loss for 2018 was $64.6 million or $0.61 per share, compared to a net loss of $40.0 million or $0.42 per share in 2017.

Adding even more reason to be a Shopify shareholder, Stewart says that the company may be ripe for a takeover.

“At times, people have suggested that with a leading company like this with a great solution that’s growing quickly that it could be a take-out target for a larger company, so that’s something that could provide additional upside over time,” Stewart says.