After a scathing report from Citron accusing Shopify (NYSE: SHOP) of running like a ponzi scheme, the stock is bouncing back nicely. The bears, albeit a small number at 5.53% of float, will not have an easy time betting against the company. The company need only report growing earnings to bring momentum investors back.
Citron does not have a strong case to accuse Shopify of running under questionable business practices. Except for unfavorable stock price valuations, the e-commerce site has a flexible business model that lets its users sell its own goods and services. The more sellers and offerings on the site, the more attractive it becomes to bring in more visitors.
Shopify’s biggest challenge is sustaining growth levels. Chances are good that business will continue to do well because there is permanent, continuous shift of business from bricks and mortar towards online sites. Businesses cannot afford to hold high inventories and a physical store, which costs rent. Instead, an online model will keep costs low and sites may adjust to changing demand.
Shopify stock topped over $120 a share before the bearish article. It would have continued its climb, moving alongside the rise in the Nasdaq index. The company reports quarterly results on November 1 before market open. Expect an overall drop in earnings Y/Y but management issuing a positive outlook for the quarters ahead.
