Shopify - Just The Tip Of The Iceberg

| About: Shopify (SHOP)


Up 140% over the past year, Shopify still has room to run.

Shopify is still under the radar of the average investor.

As exposure grows, expect influx of new investors.

One can hardly kick back on the couch and watch CNBC or browse through their favorite financial publication these days for more than a few minutes before they come across discussion of Amazon (NASDAQ:AMZN), and rightfully so, as the online retail juggernaut has skyrocketed from under $300 in January 2015 to the lofty price of $849 at the time of this article's publication.

Whether it's a roundtable discussion about how Amazon is putting the traditional retail business model of companies like Macy's (NYSE:M) in peril, or a news flash about CEO Jeff Bezos exploring the logistics of delivering packages to the moon, Amazon is everywhere.

But for investors who want to capitalize on the undeniable secular growth trend of e-commerce, but who either missed the boat on Amazon or are wary of its nosebleed valuation, is there another road less traveled that they could embark on to get exposure to the e-commerce tidal wave? One that has impressive momentum and an ascendant stock price, but just not as frothy of a gain as Amazon?

Shopify (NYSE:SHOP), a Canadian-based provider of cloud-based, multi-channel commerce platform designed for small- and medium-sized businesses with a market cap of just $5 billion, could provide just such an avenue for investors looking to get in on this theme. Shopify is up 95% since I began accumulating my position in the company last March. However, despite this recent run, I am not planning on selling any time soon because I believe the stock price still has plenty of room to appreciate.

While a 95% gain does indeed sound like a big gain and perhaps time to sell, consider that it's not uncommon for hot names in the tech sector to accumulate even bigger gains, such as Advanced Micro Devices (NASDAQ:AMD), which has gained approximately 1100% from its lows last January to its recent highs near $15 a share. If Shopify was a company producing cement or petrochemicals, I would most likely sell after a 95% gain, but in the volatile and fast-moving world of tech-investing, 95% just doesn't somehow seem quite as dramatic.

However, I am even more bullish on Shopify given that the stock went on this impressive run while receiving very little coverage from the financial media. Other hot tech names over the last several years, whether a home run like Amazon or a stock that eventually flopped like GoPro (NASDAQ:GPRO), Twilio (NYSE:TWLO), or Fitbit (NYSE:FIT), seem to be hot topics that generate passionate debate on a daily basis on channels like CNBC and in investing publications, and the stocks seem to sustain themselves on this buzz and attention.

On the other hand, anecdotally, I have never read, heard, or seen any mention of Shopify in the wide variety of investment media, whether it be in print, online, or on television and radio, that I consume on a daily basis. I've heard a myriad of people fervently discussing the Snapchat (NYSE:SNAP) IPO over the past week, even people in front of me in line for lunch, and the stock has soared out of the gate, with many retail investors presumably eager to get in on the name as it is a company they know about and are excited about.

With Shopify being so underexposed compared to these more glitzy names, despite the fact that it has outperformed many of them, my thesis is that once the sustained strong performance catches the eyes of people like the hosts on CNBC or the authors of Barron's, the stock will receive a fresh wave of attention, and thus influx of capital, from both retail and institutional investors who will be eager to be a part of the buzz.

The company recently announced its full-year financial results for 2016, and boasted of 90% revenue growth and 99% growth in gross merchandise. As an added bonus, just because I started the article by highlighting Shopify as an alternative to Amazon in terms of gaining exposure to e-commerce, that doesn't mean that Shopify's investors can't also benefit from Amazon's rise - according to the company's fourth-quarter results, an important highlight of the fourth quarter was that:

"Shopify's Sell on Amazon integration was made generally available to merchants in December. Designed to seamlessly connect Shopify store owners to the millions of customers searching for products to buy on Amazon, merchants can now conveniently manage their product catalog for their ecommerce website, retail store, Amazon store, and other sales channels all in one place."

Since this integration just took place in December, I suspect that we are just at the tip of the iceberg in terms of benefits and synergies from the move for Shopify. In addition to this promising move with Amazon, Shopify also enables users to sell over other popular platforms such as Facebook (NASDAQ:FB) Messenger and Pinterest.

It also recently added the ability to allow merchants to accept payment via Apple Pay. With ongoing collaborations with many of the most prominent names in the online world such as Amazon, Facebook, Apple (NASDAQ:AAPL), and Pinterest underway, clearly Shopify is at the forefront of the industry. These big names would not want to work with Shopify if it wasn't a unique and value-additive platform.

Investment Outlook

The stock recently hit a 52-week and all-time high of $64.36 after its impressive quarterly results were announced. Since then, the stock has pulled back a bit to $60.29, most likely because some investors wanted to take advantage of the surge and take some profits. However, the pullback of around $4 could offer a nice entry point for new investors who have been waiting on the sidelines and looking for a brief respite from the surging sales prices.

If the stock goes below $60 into the high $50s, this would just make for an even more attractive buying opportunity. A gain to $66, just $2 over the previous high, would give even a new investor starting a position today, who missed out on the last year of momentum, a chance to make a 10% return on their investment in the short term.

Longer-term, as the partnerships with Amazon, Facebook and the others begin to bear more fruit, and as the platform continues to add more merchants as e-commerce continues its long, steady march higher, combined with the company attaining profitability, my personal price target on where I would begin to think about taking profits and looking for a newer, more verdant opportunity would be somewhere in the $75 to $80 range, about a 25-30% gain from current highs.

Disclosure: I am/we are long SHOP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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