Shopify (Shopify Stock Quote, Chart, News NYSE:SHOP) could be a takeout target, and Amazon could be its suitor, one portfolio manager says.
Shopify’s recent plunge may look like a buying opportunity, especially for those of us who have been standing on the sidelines during SHOP’s remarkable run.
But there’s likely more downside to come, says Jason Del Vicario of Hillside Wealth Management.
“They’re off about 20 per cent from their highs. I don’t see this as because they’re really doing anything bad or wrong or that their prospects are deteriorating. I just think that the stock price got well ahead of itself,” said Del Vicario, portfolio manager at Hillside Wealth, to BNN Bloomberg on Monday.
“We certainly could see ourselves buying it back. I don’t know if it’ll necessarily get down to the low $200s, which would be another 50 per cent drop from here, but I could certainly see them shedding another ten or 20 per cent,” he said.
Shopify’s run over the past nine months has been a sight to behold, where the already well-performing stock kicking it up a notch in 2019, climbing a whopping 196 per cent between January 1 and a high of $409 hit on August 27. (All figures in US dollars.)
But the market seemed to have enough of SHOP, at least for the time being, as it has placed the stock on a downtrend over the past few weeks. That’s despite seemingly positive news on the company front, where Shopify announced earlier in September the acquisition of 6 River Systems, a robotics and software company, for $450 million.
Intended to help SHOP with its build-out of fulfillment centres across the United States, the purchase was greeted with a shrug by investors.
Shopify also announced last week that it had raised $694 million in a new share offering, aimed at bolstering its balance sheet and helping to fund the company’s growth ambitions. The share offering was the company’s second in less than a year, where SHOP raised $400.4 million this past December.
Del Vicario says even as Shopify grows in stature and reach, there’s a good chance that the company could be an acquisition target itself, with fellow e-commerce giant Amazon being the most logical candidate.
“It seems odd to me that nobody has taken a run at them. Amazon or one of the big tech companies should be looking [at Shopify], and I think that would provide a bit of a floor to the price,” Del Vicario said.
“My sense is that the CEO of Shopify, I don’t think he would sell, and I think that [Amazon] knows that. My sense is that it’s his baby, his pride and joy, and I think he loves going toe-to-toe with the likes of Amazon. But I would not be surprised if a big company takes a run at Shopify over the next six months,” he said.
“What worries me a little bit is what happens to them in a recession. We haven’t seen Shopify go through a recession,” Del Vicario said. “If you own it, I’d hold it, if you don’t own it I’d maybe wait for a little more weakness.”
Disclosure: Cantech’s Nick Waddell owns shares of AMZN.