One of the hardest hit technology companies of late on the TSX (and also one of the best year to date performers on the Canadian exchange as well) remains Shopify Inc. (TSX:SHOP)(NYSE:SHOP). The e-commerce focused tech darling has seen its share price dip approximately 15% from its peak recently on an overly bearish research report released by short-selling firm Citron Research approximately one month ago.
The concerns highlighted in Citron’s report, many of which hold water, point to long-term concerns among the tech company’s ability to generate customers at a fast enough rate to avoid significant churn among the company’s customer base, many of which are small to medium-sized businesses which tend to have very high default rates over the medium-term.
Shopify’s growth rate has astounded even the most skeptical analysts, and with growth in the e-commerce sector not expected to slow, forcing an "adapt or die" mentality among many "Mom & Pop" shops across North America and globally, the ability of Shopify to continue to improve quarterly growth numbers will be the main catalyst investors will be looking to as an investment metric over the coming quarters. The company’s string of earnings beats since its initial public offering (IPO) two years ago will be the key factor the company’s management team will look to keep intact – the marketing used by the company to continue to generate new customers thus will continue to gain scrutiny among skeptical analysts looking for a potential negative catalyst.
With Shopify’s stock price experiencing a near-term rebound since the bottom experienced a few weeks ago, questions as to how robust this rebound is will remain. At this point, I would remain hesitant in placing a large investment in Shopify given the potential for significant downside volatility.
Invest wisely, my friends.
