After a spectacular 2019, what’s in store for Canada’s e-commerce success story Shopify (Shopify Stock Quote, Chart, News TSX:SHOP)?
While the sky-high valuation should rightly frighten any sane investor, the truth is Shopify has what it takes to continue exceeding expectations.
That’s the take from portfolio manager Bruce Murray, who thinks your portfolio should include a few riskier items like the Ottawa-based e-commerce player.
173 per cent. You heard right.
Shopify’s returns for 2019 were enough to cause all sorts of panic for investors who thought the wise move was to stay clear of a name that had almost-silly future growth already baked into its share price.
But just as in years before where SHOP was the little engine that could, bouncing back from poor quarters and short-sellers’ attacks alike to post major gains, last year proved to be a difference maker. Shopify vaulted into the upper echelon of tech companies with a now $59-billion market cap, almost twice that of fellow e-commerce business Ebay and making even devotees to the great Amazon (NASDAQ:AMZN) start to question their faith.
Murray says that although pricey SHOP’s success shouldn’t be taken lightly.
“Shopify is one of the most expensive stocks on the face of the Earth but it’s one of the fastest growing stocks on the face of the Earth and that’s what you get,” said Murray, CEO of the Murray Wealth Group, who spoke to BNN Bloomberg on Thursday.
“We bought Shopify around $170 and we sold half of our position in the $400 range to take our money out,” he said. “I believe Shopify’s outlook for the business is great and that probably will transfer into the stock over the next few years.”
“You want to diversify the risk in these types of companies. You want to have three or four of them in your portfolio so that if three work, you can take one that doesn’t,” Murray said. “There’s no reason for Shopify not to work, but the minute the revenue growth starts to slow down the stock will come off a cliff. It’s very expensive.”
Ahead of Shopify’s fourth quarter results due later this month, the company last posted earnings in late October where SHOP saw third quarter revenue growth of 45 per cent as the company surpassed the one-million merchants mark worldwide.
“More than a million merchants are now building their businesses on Shopify, as more entrepreneurs around the world reach for independence,” said CEO Tobi Lütke in a press release. “These merchants chose Shopify because we’re making entrepreneurship easier, and we will continue to level the playing field to help merchants everywhere succeed.”
At the same time, Shopify had a loss of $0.29 per share for the quarter as the company spent money on building out its customer network and group of fulfillment centres. The loss was a shift from earnings of $0.05 per share a year prior and fell short of analysts’ consensus estimate of positive earnings of $0.10 per share.
Shopify dropped 30 per cent between late August and early November but quickly rallied over the rest of November and December.