This email hit the inbox and caught my eye today, from publisher Roger Michalski for one of the Eagle Financial publications:
“Seeing that consumers — the driving force behind our economy — are consuming in record numbers online…
“e-Commerce certainly is the place to be.
“The profit numbers shown here prove it.
“But where is the best e-Commerce place to be?
“Jim Woods, editor of Intelligence Report (and the #1 Financial Blogger in the World, according to TipRanks.com) has uncovered what he calls an e-Commerce diamond-in-the-rough.
“Jim’s predicating it could soon shine brighter than Amazon.”
That email came in yesterday, January 12, though the ad that it links to is undated — so what’s the story? Well, they’re trying to sell Jim Woods’ Intelligence Report newsletter ($77/yr) with a pitch for “Guardian Angel” stocks — five stocks that he thinks will “survive pandemics and recessions.” Including, presumably, that “diamond in the rough” e-commerce stock he hints at in the email.
So… I’m always interested in finding a resilient stock, or an e-commerce stock, and if you can name some stocks that you’re sure will survive a recession, well, sure I’ll take a gander — shall we try to ID those stocks for you?
I thought you’d never ask. Here are the clues and enticements for that first idea…
“5 Companies, 5 Sectors, 5 Unbeatable Opportunities to Grow Your Portfolio During and After COVID-19
“Jim’s first pick, an eCommerce powerhouse, is set for a 4,327% gain! ….
“Jim’s taking a hard pass on Amazon at around $3,000 a share, and buying its competitor.
“It’s his #1 recommendation in e-Commerce today….
“… with COVID-19 spiking higher in most states…
“Online sales are set to see more stratospheric gains.
“Over the past year, its shares have gained 92%, rising almost 4x higher than Amazon’s shares.
“Better still, while Amazon’s shares rose an impressive 474% over five years, this company’s shares rose over 4,000%.
“Yet, it trades at a mere fraction of Amazon’s share price.
“Therefore, you won’t need a second mortgage to buy 100 shares of this company like you would with Amazon….
“… independent analysts are predicting its stock could soon be priced at well over $1,000 a share.
“Quoting one analyst:Are you getting our free Daily Update
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“‘This is arguably the market’s most exciting and powerful growth stock, with tons of upside potential still left.'”
He calls this a “David and Goliath” story, and says they had a huge holiday season — so apparently this ad is at least somewhat current:
“This past Black Friday/Cyber Monday, the company realized $2.9 billion in total sales.
“Processing 16,000 checkouts per minute.
“In 2019, nearly 300 million consumers around the world purchased goods from merchants selling on this company’s platform….
“Big name retailers like Heineken, Staples, General Mills, D-Link, Pepsi, Gymshark, Nestle, Staples, Kraft Heinz and Kylie Jenner’s multimillion-dollar cosmetic business are now using this company’s platform.”
OK, so this is a little disappointing — but despite the fairly recent-sounding Black Friday hints, and the urgency implied by the “these are the hot ideas for a COVID resurgence”, it turns out that most of those hints are from about six months ago… and yes, in case you’re wondering, this is another tease of Shopify (SHOP).
Which is still a David to Amazon’s goliath, I suppose, and it has risen a solid 15% or so in the past six months while Amazon was flat, but we’re still talking about a $1,000 share price for Shopify, and a historically ludicrous valuation of 60X sales. I own Shopify, I love the management and the product and the focus on growth, and I expect it to do well over the next decade, but it’s a $150 billion company now, no longer an upstart minnow.
There’s not much I can tell you about Shopify that you don’t already know, I expect — they offer up a software-as-a-service platform to help people almost instantly build an online e-commerce operation, and they profit both from selling that base software and from providing a marketplace of other software plug-ins and Shopify services, including fulfillment services (warehouses and shipping) as well as payment processing. It’s a great company, and when every single retailer felt the instant need to go online during the pandemic, it was one of the immediate and obvious beneficiaries, which caused their revenue to jump roughly 100% from 2019 levels, and turned them into a profitable company (kind of like Square, which I wrote about yesterday — sometimes if the revenue washes over the decks in a typhoon, you almost can’t help but report a profit even if you’re trying to reinvest all of your cash flow into expanding the business).
And in case you needed another reason to realize that this “new” ad is actually old news, yes, Shopify has been over $1,000 for much of the past several months — that quote about it reaching $1,000 a share is actually from a different newsletter pundit, Luke Lango over at Investorplace, and it was posted on May 8, when the stock was around $700 a share.
Shopify is one of the higher-profile “COVID winners” who have had a wild year, on top of a wild run before that, and where the stock goes next probably depends a lot more on whether investors are willing to pay 50X revenues for hot stocks than it does on whether or not SHOP hits its next-quarter earnings targets. Here’s what I wrote about SHOP back in October, not long after I sold half of my position to book some profits:
“My poster child for this kind of valuation is Shopify (SHOP), which was growing revenue at about 60% in 2018, was unprofitable, and traded at an average valuation of about 18X sales that year… which was widely lambasted as absurd, and the price bounced around between $100 and $150 or so that year as investors tried to digest that valuation and make guesses about the future (with some short attacks thrown in for good measure). After that, Shopify’s revenue re-accelerated in late 2019, and the share price predicted that and started rising about six months before the growth picked back up, then leapt further still with the pandemic’s boost to e-commerce driving another acceleration in revenues, but it absolutely could have gone the other way. SHOP revenues could have continued to moderate, with growth gradually slowing, and the shares could have languished in the $100s for a couple years and provided maybe a near-market return instead of the 500%+ return SHOP shareholders enjoyed. They didn’t, which is lovely, but that was not preordained — the wild short-term performance of SHOP has come from a combination of luck, very good management, and good timing with the pandemic tailwind that e-commerce has enjoyed. Accelerating growth is a rare thing for large companies, it brings investors pouring in, but it’s not generally sustainable for long, and that seems to be a big part of what drives these momentum stocks at the moment.”
What’s gonna happen next? I have no idea. I’d buy more Amazon today before I bought more Shopify, but both are well-positioned for the future and both are trading at valuations we haven’t seen in a long time — I expect that folks who buy either one today will probably be happy five or ten years from now, that would probably give time for the real operating growth to catch up with the stock price and recover from whatever big drops they might have along the way (and I’d count on both of them having nasty 20-40% drops at one point or another, as has happened several times in the past for both stocks — maybe even more, if we get a real crash), but anything shorter-term than that is just a guess about future investor sentiment about growth stocks. We’ve almost never seen these kinds of valuations for very large companies… but that was true six months ago and a year ago, too, in a lot of cases, and plenty of formerly expensive stocks have risen 100-200% (or more) in that time and gotten more expensive. I wouldn’t talk you out of buying Shopify, it remains one of my favorite companies — maybe the shift to e-commerce will be durable enough, and growth sustainable enough, to support this valuation and keep the stock soaring. I just have to confess that I haven’t had the stomach to buy shares since it was in the $300s about 18 months ago, and my most recent trade in SHOP was to take profits.
And I’ve run out of time, dear friends, so I’ll have to leave you with that somewhat stale but still interesting idea — if you’ve got thoughts on Shopify, or Amazon, or on e-commerce in general, feel free to shout them out with a comment below… and I’ll look into the other four ideas hinted at by Woods in a future installment (probably tomorrow). Have a great evening!