Don’t sell your Shopify, this investor says

Sell Shopify? The temptation is there in spades.

Shopify (Shopify News, Stock Quote, Chart TSX:SHOP) has been a killer of a stock for years now but the momentum has only amped up this year. So what could be wrong with selling and taking your double (or triple) to the bank? Lots, says Greg Newman of Scotia Wealth Management.

“Really high stocks shake everybody out,” said Newman, senior wealth advisor and director of wealth management at Scotia Wealth, to BNN Bloomberg on Thursday. “Nobody tends to own the real winning stocks because everybody gets scared. When it drops $100.00, people are like, ‘Oh, I made my money three times — I’m out.’”

“So, know that and then own Shopify,” he said. “If you’re lucky enough to identify the winners and can get in early, try not to get chased out.”

Shopify has been wowing investors with its consistent execution quarter after quarter and its upcoming Q2 report, expected on August 1, could bring another big catalyst for the stock. Management has guided for revenues in the range of $345 million to $350 million, which would represent a growth rate of between 41 and 43 per cent, year-over-year — that’s higher than the 40 per cent that analysts are calling for, meaning that by executing to plan, SHOP will beat the consensus yet again. (All figures in US dollars.)

Newman says that while it’s still up in the air whether or not Shopify’s e-commerce play will be a winner for years to come, his money is on the stock doubling once more during the next five years.

“It’s showing momentum. [There are] numerous drivers still to sustain long-term growth in e-commerce. They raised their guidance on Q1 but they’re still probably being conservative. We’re modelling 90 per cent EPS growth for 2019, 2020 and 2021,” Newman said.

“That’s the good news. The bad news is it trades at 262x 2021 earnings. Valuations like this, expect to have huge air pockets when there’s any kind of doubt. And if they ever start missing, it could be the end of this incredible story,” he said.

“The question is, can they continue to execute and is anybody else out there that’s going to eat their lunch. Who knows? We’ll see, but I’m betting that you still want to be owning this stock. I think that it can double from here, that it can double again over the next five years,” he said.

Shopify’s Q1, delivered on April 30, featured revenue of $320.5 million, a 50-per-cent growth rate, and adjusted earnings of $10.3 million or $0.09 per share. Analysts were expecting revenue of $310 million and EPS $0.05 per share.