Shopify’s chart says it’s still a buy, this analyst says

Here’s one problem we all wish we had. If you own Shopify (Shopify Stock Quote, Chart, News TSX:SHOP), you’ve not only been making out like a bandit in recent years but your big gains may have put your portfolio out of whack.

If that’s your issue, trimming your position in the name of balance is probably a good idea, according to portfolio manager Hap Sneddon of CastleMoore Investment, who says both the company and stock are in a good position.

“I think it’s still a wonderful story. When you look at the chart, it makes us all look good, whether you’re a fundamental or technical analyst,” says Sneddon, president and founder of CastleMoore, in conversation with BNN Bloomberg on Tuesday.

E-commerce sensation Shopify has been a great growth stock to own for a number of years now but the name really started turning heads last year where SHOP went from C$189 per share on January 1 to C$516 by the end of the year — that’s a 12-month return of 173 per cent if you’re keeping score.

“We’ve had some big dips [in 2019] from C$550 down to C$370, but the chart looks pretty good,” said Sneddon. “They had a big comeuppance [on Tuesday], but the high fliers, they get taken out to the woodshed first, commensurate with their performance that preceded that.”

“If you own Shopify, as we have done over the years, you want to take a little bit off the table because it becomes a very large portion of the portfolio. So, if you do own this now, that’s what I would look at — has this thing grown too big in my portfolio,” he said.

“But there’s no indication technically or fundamentally for it to be a changed position in a portfolio other than allocation. Don’t let that bother you that it’s gone so far. It’s a good chart and a good company so you’ve got to deal with the volatility,” Sneddon said.

All eyes will be on Shopify’s next quarterly earnings release due on February 12, with investors looking for fireworks from the company’s fourth quarter earnings which feature the November-December holiday shopping season.

In its last reported quarter, SHOP posted revenue of $390.6 million, a 45-per-cent year-over-year increase and ahead of analysts’ average forecast of $384 million. At the same time, the company had adjusted earnings loss of $33.6 million or 29 cents per share compared to an adjusted profit of $5.8 million a year earlier. Analysts had been expecting adjusted earnings of $13.17 million or 11 cents per share.

Ottawa-based Shopify made headlines this week announcing it would be opening a permanent office in Vancouver and hiring 1,000 for it.

Shopify’s vice-president of UX, Lynsey Thornton said that the move represents the company’s commitment to Vancouver. “What’s unique about our announcement, is that we’re committing to building a top tier R&D team. This won’t be an office where career growth is limited. It’s our intention to build the best R&D team in the city,” said Thornton.

Sneddon says that for investors on the outside wondering whether now is the time to buy Shopify, there could be a better entry point coming up.

“I’d wait a little bit,” Sneddon said.