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Is it time to buy Shopify?

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shopify buyShopify (Shopify Stock Quote, Chart, News TSX:SHOP) has been a hot stock for years now but with its share price dangling below highs of earlier this year, investors may be wondering if now’s the time to buy.

It all depends on whether you’re a trader or a value investor, says Stan Wong of Scotia Wealth Management.

“I’ve never held Shopify. Clearly, the valuation is something that would hold a lot of investors back,” said Wong, director of wealth management at Scotia Wealth, speaking on BNN Bloomberg on Thursday.

“[But] the shares are trading just off the 200-day moving average so if you’re trading the stock, maybe that’s where you want to enter it,” he says.

For years, Shopify was the stock that couldn’t be beat.

Chastised for a lack of profitability and derided for already having too much growth baked into its share price, Shopify’s critics have been loud and clear in their dislike of the name.

Most glaring were the short-seller attacks in recent years on the company’s business model, alleging that the company was either giving false hopes to its small- to medium-sized business clientele or too dependent on other platforms like Facebook to support its commerce.

But the funny thing was that as each new wave of criticism pulled the stock down, SHOP promptly bounced up off the mat and bulldozed its way higher.

Yet even with resilience as its middle name, Shopify is in the middle of a slump more prolonged than any it has faced for quite some time. SHOP was up an incredible 189 per cent for the year when it hit a wall in late August, dropping from a high of $543 per share to as low as $380 by late September. Since then the stock has moved up and down and currently trades in the $420 per share range.

Wong points out that Shopify has underperformed the TSX since its high in late August but that bouncing off its 200-day moving average is a notable for traders. Not so much for value investors, though.

“It’s trading at 435x forward earnings and it does have a pretty good growth rate of about 42 per cent expected. But they deal in the SMB (small to medium business) space and that is more vulnerable than companies that deal with larger companies. So, if you have an economic downturn it’s going to get hit a little harder,” Wong said.

“Its valuation is very high, so any missteps are going to mean $100 off, in my opinion,” he added. “There’s greater risk when it comes to these kinds of tech companies. When I look at tech I usually look down to the US and pick up Visa or Mastercard or Microsoft.”

Shopify last posted its quarterly results late last month where it delivered its 17 consecutive quarter of higher than expected revenue, coming in with a $390.6-million top line, up 45 per cent from a year earlier. At the same time, Shopify’s operating losses for the quarter were $35.7 million, larger than the $31.4-million from a year prior as the company continues its build-out and development of new applications and products.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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