There may be more downside risk to Canadian tech company Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP), says Veronika Hirsch of Arrow Capital Management, who argues that now’s not the time to jump into still one of the hottest stocks around.
Shopify has been on a tear this year, more than doubling in value since January 1st. But reality seemed to kick in last week once the stock made it past the US$300 mark. The e-commerce company has received a number of downgrades from analysts concerned that the stock is now in overbought territory. The market has responded by dropping SHOP by more than nine per cent Tuesday.
And while a rally looks to be forming on Friday, Shopify’s volatility should cause investors to be wary about putting any new money into the name, says Hirsch, portfolio manager at Arrow Capital, who spoke to BNN Bloomberg Thursday.
“There have been two downgrades, and so the stock has corrected by ten per cent. I would love to see a little bit more correction,” says Hirsch. “So, I’m not sure that today is the day to enter a new position. I would certainly not be selling it.”
“I own it and I haven’t sold any with the downgrades, even though it has been tempting,” she says.
Hirsch insists Shopify is no longer just a Canadian success story but has attained a legitimate place in the broader tech conversation.
“If you talk to US analysts, they certainly don’t look at it as [just] a Canadian name. It’s widely followed in the US. In fact, today I heard an analyst talk about it on CNBC. It’s widely owned in the US,” Hirsch says.
Although still without a year of profit to its name, Shopify has nonetheless impressed not only with its exponential growth rate but its growing maturity and continued ability to hit its financial targets.
Its latest quarter was a prime example, with SHOP beating analysts’ expectations on both revenue and earnings. The company’s fiscal first quarter saw its top line grow by 50 per cent year-over-year, jumping from $241.3 million to $320.5 million and cruising past the consensus $310 million, while its adjusted earnings of $10.3 million or $0.09 per share were also better than the expected $0.05 per share. (All figures in US dollars.)
Hirsch says Canadian tech companies like Shopify may also be benefiting from recent struggles by the big US tech giants, many of whom are facing tougher regulatory scrutiny concerning antitrust and privacy matters.
“If you look at all the Canadian companies, they didn’t do as well last year as the US ones. [This year], they’ve outperformed the US, and I think that part of that might be that for the Apples and Googles and Amazons, they all have some kind of regulatory overhang, whereas in Canada we don’t,” says Hirsch.
“I’m wondering if that’s not contributing to the popularity of the Canadian stocks because we don’t have that issue. Obviously, our stocks are smaller and they don’t control the market to that extent, but I’m just wondering if that didn’t help the shift,” she says.