by Travis Johnson, Stock Gumshoe | June 18, 2018 1:01 am
Here’s the teaser pitch from Lombardi[1]’s Moe Zulfiqar[2] 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)[3], 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[4] 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[5] 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!
Are you getting our free Daily Update
"reveal" emails? If not,
just click here...“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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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
We do summarize and skip to the details for our paid members (the Irregulars), who get that “Quick Take” at the top of my articles.
My goal is to provide enough analysis of the marketing behind the stock idea and of the investment itself to give you a chance to start your research on a relatively balanced footing, without too much hype distracting from the reality. I think analyzing the source and the emotional drivers behind some of these investment decisions is important, and that taking your time and doing research is usually worthwhile.
Not for everyone, I know… and I know many of our paid readers just read the summary and my brief opinion quickly and don’t bother with the full story — which is fine, but I can’t develop a fuller understanding without writing about it, so I share my full thought process for those who want more.
Thanks for the feedback… I do know that I tend to be long-winded.
I agree (w Travis). Find is useful that you deconstruct the hype and the pitch. Keep up the good work.
You are too kind, Travis. Maybe you should take away comment privileges for non-paying guests.
Or just block Terry?
If that’s what you’re into, it’s worth the modest monthly fee here to become an Irregular and get the Cliff notes in a box atop each article.
What are you complaining about. It is for free. Be grateful..
How to order? Wow, you sound like a seasoned pro at this stuff.
How to order? I think there’s a vendor using a Shopify-built website where you can order. 🙂
like the world owes you a free lunch..
Thanks a lot, Travis. I get into shopify in the last dip and planning to hold for a long time.
I put 40 shares in my wife’s IRA a year ago and so far looks good, up close to 50 %. Will have to see what it does during next year, I think it will go up very fast after marijuana in Canada is legal. Currently Canada is planning to use Shop as a main platform.
In October 2017 the notorious short seller Citron lambasted Shopify with wild accusations of impropriety and capped it off with a bold homepage heading in red on their website of: ”Shopify Immediate Price Target- $60- and that is before they are caught red handed by the FTC”.
SHOP was trading with definite momentum at $120 at the time. Citron’s wild accusations made front page news which resulted in SHOP retracing by 22% in intra-day trading on one day to $94 with sentiments doing the rounds of SHOP being toast.
What a favor Citron did the believers by creating such a buying opportunity. Eight months later it has escalated by 50% by trading currently at $141.00.
Having IPO’d in a competitive market only three years ago already with a market cap of $18 Bill it has not despite Citron’s attempted intervention traded below the 200MA for a period of more than two years. Volatility is the comfortable range with a Beta of 1.31 Even if valuation seem absurd with a Forward P/E of 296 and Price to Equity of 10.7 SHOP continues to attract Buy Ratings from the big firms of the likes of Morgan Stanley, Credit Suisse, Roth Capital et al who all tend to up their price targets regularly.
If you are in SHOP – stay in, if not, get in ……
I went (decent amount) on Shopify a year ago and I am pleased.
I went (decent amount) on Shopify a year ago and I am pleased.
(not sure why it posted my first one as a guest)
for bluechipholder,
because you were not signedin at the time of your first post….
I bought in when you first mentioned SHOP and now am up 149%. It’s one of my larger holdings. so I appreciate your occasional update. Thanks for sharing your research, and I always read the long version. Not only do I learn through your expounding on the process, but I also enjoy your whimsical writing style.
name of company that makes the screen for I-phone that Apple will be buying as well as others
I am so discouraged. I had to retire long before I wanted to and long before I was ready.I had a small amount in an IRA , but I have to use much of it to pay off my house. I was hoping to find investor services that could help me get ahead more quickly , because I don’t have 30 years. The problem is not only that these services appear to be downright lying,they also charge thousands (average seems to be $2000-$5,000-usu.per year). This is not only a huge amount for people like me, then they say “no refunds”. They give testimonials of happy customers who verify that the newsletter has made them 1,000% in a year, $200,000 in 3 mo,etc. All of these are false, I believe. These men(mostly) say they are former hedge fund managers and are billionaires, or multi-millionaires,and their method is 95% accurate. If they are, why are they being so dishonest? Isn’t there some way,other than this website, to recover the money we have spent on their scams, and aren’t any advisement letters worth subscribing to?
Unfortunately the financial industry has a lot to desired. Companies with promise misstate earnings and the stock drops or they have a huge float and have new offerings you never really know. any time you buy and it drops. and where there is money there are thieves. Try to limit losses to 10 percent. don’t be afraid to sell. smaller stocks have disavantages buying and selling try to stay with good stocks that you can sell or buy at the price you want don’t be afraid to buy the apples and googles and amazons but try and buy them at a discount. a small profit is better than a big loss. nothing is bulletproof and nothing is forever stop losses are cancelled and all od a sudden a loss is 25 or more precent, if stocks are doing well put stop losses on them and buy more on dips with sales from poorer doing stocks. see what sectors are doing well. Try and get a spectrum of sector stocks dont try to make a killing just try making a profit. oppertunities come along so always have some cash to buy . Roth IRA’s vs regular IRA’s can make a difference too. EFT’s and funds the fees count larger fees are no guarantee of better returns .
If you buy a stock you need to feel it is priced right and is something people will like and use. for exAMPLE == SQ was making credit cards possible for small vendors without big bank fees buying and selling it over a few years from 11 dollars to 50 something you can wnd up with a few hundred shares at sixty or more having cost you 45 dollars Unfortunately you need to find your own system no comission eft’s is a better place to keep money than a .0005 interest account.