Shopify is benefiting from Amazon’s purge of small suppliers, this investor says

Canadian e-commerce company Shopify (Shopify Stock Quote, Chart TSX:SHOP) is wowing investors with its sparkling gains in 2019, but while the stock may be a little too hot at the moment, there are good reasons to believe that SHOP will meet much of those lofty expectations for forward earnings, says Andrew Pyle of Scotia Wealth.

“One of the interesting things about Shopify that’s becoming apparent to investors right now is that as Amazon starts to retreat out of smaller suppliers, buyers have to go somewhere, and Shopify now represents a company that fills that void,” said Pyle, portfolio manager and branch manager for Scotia Wealth, to BNN Bloomberg on Wednesday.

“That’s why you see a lot of investor interest coming into the company of late,” he says.

Shopify has been a beast of a stock this year, essentially doubling in value since the start of January. SHOP’s inclusion into the S&P/TSX 60 hasn’t hurt bring in new investors nor has the company’s quarterly earnings which continue to impress.

Its latest quarter arrived on April 30 where Shopify’s first quarter 2019 grew revenue by 50 per cent year-over-year, going from $214.3 million to $320.5 million and beating analysts’ expectations of $310 million. Adjusted earnings were $10.3 million or $0.09 per share which was also better than the expected $0.05 per share.

“We’re off to an incredible start this year, as more merchants around the globe choose Shopify to start, grow, and manage their businesses,” said Amy Shapero, Shopify’s CFO. “Entrepreneurs and enterprises alike recognize that Shopify’s merchant-driven mission helps them build their most successful business and thrive in an ever-changing retail landscape.”

As of January 1, Shopify’s share price stood at $182.02 and has steadily risen over the past five months to where it now trades in the mid-$370 range. All those gains may have Shopify shareholders wondering whether it’s time to take some money off the table. And while Pyle says that some profit-taking might be a good idea, holding SHOP is still a good idea considering the company’s rosy prospects.

“In terms of valuations today, I’d say they’re probably a little bit rich. We’ve seen a nice rebound. So you may want to take a little bit of money off the table,” says Pyle. “But in terms of the stock being part of the portfolio that you’ve already generated, I think you’d want to leave it in there. Just pull it back a bit.”