Shopify Deserves To Fall Off Best Idea List


Shopify (SHOP) has done everything to deserve dropping off an analysts Best Ideas list. The company recently sold shares in a secondary offering and has a new CFO, but the prime reason to avoid the stock now is a completely different reason.

Ironically, Wedbush dished Shopify due to the analyst leaving the firm, but the move was timely. In February, the company sold 4.8 million shares at $137 to raise over $650 million. As well, Shopify has a new CFO starting April 2. Not a very good combination. CFOs rarely leave such a strong story.

The biggest issue though is that the company is a modern day Ebay (EBAY) trading at a ridiculous valuation. Shopify now trades at 3.5x the forward P/S multiple of Ebay.
High-growth stocks rarely maintain forward P/S multiples in excess of 10. In most cases, shareholders end up burned.

As the 70%+ growth rate in 2017 turns into 35% in 2019, the multiple will contract leaving limited upside for shareholders despite the fast growth.

Recommending a stock trading at these levels with a market cap approaching $15 billion is impossible.

Disclosure: No position mentioned. Please review the disclaimer page for more details. 


Comments

Anonymous said…
That's silly to even hint that Shopify is somehow dependent on Facebook; therefore, Shopify will lose out as a result of FB issue? Geez.....
I will not sell my Shopify stock!
Does Citron have something against Shopify??? Why the bad publicity?
Mark Holder said…
Do you not think Citron brings up a great point on the quality of the accounts?

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