Lombardi’s “If You Missed Apple, Shame on Us. If You Miss This…” Stock

Teased that this "secret" stock "Will Soon Become a Household Name in the Top Tier of Tech Companies" -- what is it?

By Travis Johnson, Stock Gumshoe, June 18, 2018

Here’s the teaser pitch from Lombardi’s Moe Zulfiqar that caught my eye as he shouts out the headline, “A 1,000% Windfall from the New King of Online Retail“…

Here’s some more from the first part of the ad, which is sniffing around in an attempt to dig up new subscribers to Lombardi’s Micro-Cap Tech Reporter ($295/year):

“In all my years of financial research…

“This is one of the rarest high-tech opportunities I’ve ever seen…

“It involves the $402-billion mighty Amazon…

“… and a tiny, off-the-radar tech company little more than 1/100th its size… with a breakthrough strategy… that’s growing so fast…

“And with so much high-tech power firing up its online-shopping platform…

“… it basically snapped up $6.2 billion worth of Amazon’s business…”

And we get plenty of quotes and hints about what the company might be…

“Amazon could not compete with the technology of this little ecommerce company…

“The Wall Street Journal even wrote, ‘[This little company] Strikes Agreement With Amazon to Migrate Accounts.’

“CNBC added, ‘[This company] spikes 8% after report of expected Amazon sales partnership announcement.'”

Well, those quotes sound awfully familiar… and those articles, while real, are from January of 2017, when Amazon did announce that they were ending their Marketplace service and recommended that their small merchants migrate to… Shopify (SHOP), which is the stock being teased here.

So yes, all of this is quite old… and I imagine that Lombardi probably trots this ad out regularly throughout the year. They hint at 300,000 stores that use this platform, and SHOP had gotten well over 300,000 by early 2017. They talk about $6.2 billion in sales, which must be a reference to gross merchandise volume (the sales made by merchants who use Shopify, not SHOP’s corporate revenue), and SHOP was well over that number on an annual basis by 2015.

And the talk about the “next earnings report” bringing big returns is also fairly generic… since many of SHOP’s earnings reports have brought a “beat and raise” pop for the stock…

“This stock could realistically explode in the coming months, potentially gaining over 50% in one trading session.”

Well, sure, I guess it could… though the chances decrease as the size of the company increases. SHOP’s business is to provide a subscription-based platform that lets anyone start an online retail shop, and, once they’ve built it up into something larger, to sell them more and better services surrounding the basic e-commerce platform.

It is now roughly a $17 billion company, so it’s small compared to some (Amazon, for example), but is clearly not a “micro cap” stock… and it’s very momentum-driven and sentiment-driven, as shareholders over the past year will have no doubt noticed. I covered the stock for the first time almost exactly two years ago now, when the Canadian arm of the Motley Fool was the first to really widely tease the stock as a hot idea (or, at least, the first to catch my attention).

The stock is up more than 500% since then, despite some relatively pushy “short” attacks starting last Fall and despite having “only” 170% revenue growth, and it is barely profitable at this point as they try to maximize customer growth, so clearly a lot of what’s driving the stock is future expectations and investor enthusiasm, not the actual income statement.

That’s not saying all that much, of course, the same can be said of many growth stocks that are waiting for their operations to catch up with their valuations — and who knows, perhaps Shopify will get there. I think it’s worth a speculative position, which is what I own in these shares, but I’m also cognizant that there’s a meaningful risk of a rapid fall if they have trouble growing, so I haven’t made this a large position.

More from the ad:

“I believe we are on the cusp of another second-profit-phase opportunity with the company I’m telling you about today!

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“Here’s why you must get in now to earn a slice of the potential profits…

“According to the U.S. Department of Commerce, U.S. online sales figures for the most recent calendar quarter came in at $102.7 billion.”

And that, too, is quite stale — the last quarter that was near that level was the fourth quarter of 2016. Though it’s quite true that there’s no particular reason to expect that growth to stop (the fourth quarter of 2017 was about $119 billion, and over the past decade ecommerce has gone from about 3% of retail sales to about 10%).

So what’s the story with Shopify now? Here’s what I wrote to the Irregulars the last time I updated them on my SHOP position, following the latest quarterly earnings last month:

“Shopify (SHOP) had yet another beat and raise quarter, including actual (adjusted) profits, but some of their growth metrics are showing signs of being a hair weaker than hoped (still growing gross merchandise volume, but only 64%, not 81% like a year ago… and still growing subscription revenue, but by 57%, down from last year’s 62%). That shows how fragile a high-growth small cap can be, if even a slight reduction in growth is worrisome to investors. I’m not terribly concerned, because this is a very volatile stock, with very strong market share and a possibility of achieving real market dominance… and because my position is small — but if you’re worried and wish to protect gains, a 20% stop loss would be just below $120. My current stop loss trigger on this uses the TradeStops volatility quotient (close to 40%), to give room for what has been a volatile stock while still protecting a profit, and that’s down around $92. My inclination is to mind that stop loss level, but otherwise hold through the volatility as the underlying fundamentals continue to grow at a phenomenal rate.

“SHOP won’t report real profits (non-adjusted) for a while, probably — analysts think their GAAP earnings will be negative through next year, mostly because of stock-based compensation for employees, but if you want to gaze into the crystal ball the average forecast is for real GAAP earnings of almost a dollar in 2020, and adjusted earnings that year of $1.76. That’s still not enough to make it a “value” stock on an earnings basis, of course, but that would represent continued revenue growth of 40-50% a year, and that’s a rare and very desirable top line growth number that the market almost always is willing to pay dearly to own. At $136 we’re already paying dearly, of course, that’s 77 times forecasted 2020 earnings, which is why I watch that stop loss level — if market sentiment shifts, and paying for growth is no longer something that investors want to do, it could be a fast and hard ride down for stocks like Shopify.”

The stock’s not at $136 anymore, it dropped after that earnings report and then recovered to get up over $160… but it’s not all that far away — if you do want to speculate on this one, I’d keep that downside risk and volatility in mind and ease into it slowly. The company is phenomenal and is doing a great job of dominating its space… but no one is entirely sure just how big that market will be, or what SHOP will look like in five years as it adapts to the changing world of e-commerce and helps to build up the next wave of online retail entrepreneurs. Next earnings will be in early August.

Sound like your kind of investment? Let us know with a comment below… don’t worry, we don’t bite.

Disclosure: I own shares of both Amazon and Shopify. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.


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Terry
Guest
Terry
June 18, 2018 12:10 pm

can we just skip the commercial and get to the details…. too much trouble to digest the commercial… I would just like the down and dirty where, price and how to order

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Doug
Guest
Doug
June 18, 2018 1:47 pm

I agree (w Travis). Find is useful that you deconstruct the hype and the pitch. Keep up the good work.

tanglewood
Irregular
June 18, 2018 5:34 pm

You are too kind, Travis. Maybe you should take away comment privileges for non-paying guests.

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