In a reply to an email from friends today about Shopify’s stock pullback due to the recent short report issued by Citron, and a related article in the Globe and Mail about SHOP’s future prospects (paywall), I pointed out the following considerations that I consider relevant (at least from my point of view):
Maybe the stock price rises are over. Maybe not. Certainly caution is warranted. Keep allocations reasonable if holding. I sold half my position last month. I am watching it closely now and may sell more in December when I next trade (I only trade four times a year). I am still up 167%.
I note the stock, after the big pullback Wednesday, has remained weak, but it’s not collapsing. It is now (this morning) back where it was August 22. I expect the November 2nd earnings report will be very significant for its short-term future price behaviour. So far it has beaten estimates every time. We’ll see if that continues. Also, guidance towards profitability will likely be scrutinized closely. It’s expected to be profitable in 2018.
I personally believe the short report is exaggerated. Aside from that, this stock has had a meteoric rise this year (not likely to be repeated next year) and it remains vulnerable to any shock – shorting, earnings miss or market correction. That doesn’t necessarily mean this stock must be sold provided weightings are reasonable and a long-term position is the game plan.
I also note that Shopify has defended its marketing practices and business model.
Having said all this, SHOP is possibly going to breach one of my sell rules I’ve identified in our household portfolio plan: consider selling any security if its fundamentals change negatively such as chronic negative sentiment among investors (including short-attacks).
I know sentiment changes are *not* (corrected) truly fundamental. But in some cases sentiment can be far more important than fundamentals.
I’ll watch SHOP closely over the next few weeks to see how to proceed. As implied, November 2nd’s earnings report will be very important for short-term sentiment beyond the short report. I will try to look past it.
My current stance: hold.
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